A.
Forms and Interpretation The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
1. Requisites of Negotiability
HSBC Ltd.-Phil. Br. vs. Comm. of Internal Revenue, G.R. No. 166018, June 04, 2014
The Court finds for HSBC.
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom
it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money
to order or to bearer." A bill of exchange is one of two general forms of negotiable instruments
under the Negotiable Instruments Law.15
The Court further agrees with the CTA that the electronic messages of HSBCs investor-clients
containing instructions to debit their respective local or foreign currency accounts in the Philippines
and pay a certain named recipient also residing in the Philippines is not the transaction
contemplated under Section 181 of the Tax Code as such instructions are "parallel to an automatic
bank transfer of local funds from a savings account to a checking account maintained by a
depositor in one bank." The Court favorably adopts the finding of the CTA that the electronic
messages "cannot be considered negotiable instruments as they lack the feature of negotiability,
which, is the ability to be transferred" and that the said electronic messages are "mere memoranda"
of the transaction consisting of the "actual debiting of the [investor-client-payors] local or foreign
currency account in the Philippines" and "entered as such in the books of account of the local
bank," HSBC.16
More fundamentally, the instructions given through electronic messages that are subjected to DST
in these cases are not negotiable instruments as they do not comply with the requisites of
negotiability under Section 1 of the Negotiable Instruments Law, which provides:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
exchange; they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and, they are
not payable to order or bearer but to a specifically designated third party. Thus, the electronic
messages are not bills of exchange. As there was no bill of exchange or order for the payment
drawn abroad and made payable here in the Philippines, there could have been no acceptance or
payment that will trigger the imposition of the DST under Section 181 of the Tax Code.
Section 181 of the 1997 Tax Code, which governs HSBCs claim for tax refund for taxable year 1998
subject of G.R. No. 167728, provides:
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of
Thirty centavos (P0.30) on each Two hundred pesos (200), or fractional part thereof, of the face
value of any such bill of exchange, or order, or the Philippine equivalent of such value, if expressed
in foreign currency. (Emphasis supplied.)
Section 230 of the 1977 Tax Code, as amended, which governs HSBCs claim for tax refund for DST
paid during the period September to December 1997 and subject of G.R. No. 166018, is worded
exactly the same as its counterpart provision in the 1997 Tax Code quoted above.
The origin of the above provision is Section 117 of the Tax Code of 1904,17 which provided: SECTION
117. The acceptor or acceptors of any bill of exchange or order for the payment of any sum of
money drawn or purporting to be drawn in any foreign country but payable in the Philippine
Islands, shall, before paying or accepting the same, place thereupon a stamp in payment of the tax
upon such document in the same manner as is required in this Act for the stamping of inland bills
of exchange or promissory notes, and no bill of exchange shall be paid nor negotiated until such
stamp shall have been affixed thereto.18 (Emphasis supplied.)
It then became Section 30(h) of the 1914 Tax Code19:
SEC. 30. Stamp tax upon documents and papers. Upon documents, instruments, and papers, and
upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident
thereto documentary taxes for and in respect of the transaction so had or accomplished shall be
paid as hereinafter prescribed, by the persons making, signing, issuing, accepting, or transferring
the same, and at the time such act is done or transaction had:
xxxx
(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign country but payable in the Philippine
Islands, on each two hundred pesos, or fractional part thereof, of the face value of any such bill of
exchange or order, or the Philippine equivalent of such value, if expressed in foreign currency, two
centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26, 20 as
amended:
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for the
payment of money, payable at sight or on demand, or after a specific period after sight or from a
stated date."
SEC. 46. Bill of Exchange, etc. When any bill of exchange or order for the payment of money
drawn in a foreign country but payable in this country whether at sight or on demand or after a
specified period after sight or from a stated date, is presented for acceptance or payment, there
must be affixed upon acceptance or payment of documentary stamp equal to P0.02 for each 200
or fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which provided:
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of
four centavos on each two hundred pesos, or fractional part thereof, of the face value of any such
bill of exchange or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)
It then became Section 230 of the 1977 Tax Code, 22 as amended by Presidential Decree Nos. 1457
and 1959,which, as stated earlier, was worded exactly as Section 181 of the current Tax Code:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others. Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of
thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of any such
bill of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)
The pertinent provision of the present Tax Code has therefore remained substantially the same for
the past one hundred years.1wphi1 The identical text and common history of Section 230 of the
1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show that the law imposes DST
on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the
payment of money that was drawn abroad but payable in the Philippines.
DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto.23 Under Section 173 of the 1997 Tax Code, the persons primarily liable
for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or (5)
transferring the taxable documents, instruments or papers.24
In general, DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific
instruments. Examples of such privileges, the exercise of which, as effected through the issuance of
particular documents, are subject to the payment of DST are leases of lands, mortgages, pledges
and trusts, and conveyances of real property.25
As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997 Tax
Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or
order for the payment of money that was drawn abroad but payable in the Philippines. In other
words, it levies DST as an excise tax on the privilege of the drawee to accept or pay a bill of
exchange or order for the payment of money, which has been drawn abroad but payable in the
Philippines, and on the corresponding privilege of the drawer to have acceptance of or payment for
the bill of exchange or order for the payment of money which it has drawn abroad but payable in
the Philippines.
Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange has a very definite
meaning in law.27 In particular, Section 132 of the Negotiable Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth. The acceptance of a bill [of exchange28] is the
signification by the drawee of his assent to the order of the drawer. The acceptance must be in
writing and signed by the drawee. It must not express that the drawee will perform his promise by
any other means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of
exchange is both the manifestation of the drawees consent to the drawers order to pay money
and the expression of the drawees promise to pay. It is "the act by which the drawee manifests his
consent to comply with the request contained in the bill of exchange directed to him and it
contemplates an engagement or promise to pay."29 Once the drawee accepts, he becomes an
acceptor.30 As acceptor, he engages to pay the bill of exchange according to the tenor of his
acceptance.31
Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment.32Presentment for acceptance is the production or exhibition of the bill of exchange to
the drawee for the purpose of obtaining his acceptance.33
Presentment for acceptance is necessary only in the instances where the law requires it. 34 In the
instances where presentment for acceptance is not necessary, the holder of the bill of exchange can
proceed directly to presentment for payment.
Presentment for payment is the presentation of the instrument to the person primarily liable for the
purpose of demanding and obtaining payment thereof.35
Thus, whether it be presentment for acceptance or presentment for payment, the negotiable
instrument has to be produced and shown to the drawee for acceptance or to the acceptor for
payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or
orders for the payment of money that have been drawn abroad but payable in the Philippines) that
is subjected to DST under Section 181 of the 1997 Tax Code is done after presentment for
acceptance or presentment for payment, respectively. In other words, the acceptance or payment
of the subject bill of exchange or order for the payment of money is done when there is
presentment either for acceptance or for payment of the bill of exchange or order for the payment
of money.

Applying the above concepts to the matter subjected to DST in these cases, the electronic
messages received by HSBC from its investor-clients abroad instructing the former to debit the
latter's local and foreign currency accounts and to pay the purchase price of shares of stock or
investment in securities do not properly qualify as either presentment for acceptance or
presentment for payment. There being neither presentment for acceptance nor presentment for
payment, then there was no acceptance or payment that could have been subjected to DST to
speak of.

Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on
the part of HSBC. To reiterate, there was no bill of exchange or order for the payment drawn
abroad and made payable here in the Philippines. Thus, there was no acceptance as the electronic
messages did not constitute the written and signed manifestation of HSBC to a drawer's order to
pay money. As HSBC could not have been an acceptor, then it could not have made any payment
of a bill of exchange or order for the payment of money drawn abroad but payable here in the
Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of the
1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person making,
signing, issuing, accepting, or, transferring" the taxable instruments under the said provision. Thus,
HSBC erroneously paid DST on the said electronic messages for which it is entitled to a tax refund.
Rodrigo Rivera vs. Sps. Salvador and Violeta Chua, G.R. No. 184458, Jan. 14, 2015
We agree that the subject promissory note is not a negotiable instrument and the provisions of the
NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the following
elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is: SECTION
184. Promissory Note, Defined. A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed by the maker, engaging to
pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to
bearer. Where a note is drawn to the makers own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees. However, even
if Riveras Promissory Note is not a negotiable instrument and therefore outside the coverage of
Section 70 of the NIL which provides that presentment for payment is not necessary to charge the
person liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he
issued.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default: (1) when
there is an express stipulation to that effect; (2) where the law so provides; (3) when the period is
the controlling motive or the principal inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, it is not sufficient that the law or obligation
fixes a date for performance; it must further state expressly that after the period lapses, default will
commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of (120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to
FIVE PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid
for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the "date of default"
until the entire obligation is fully paid for. The parties evidently agreed that the maturity of the
obligation at a date certain, 31 December 1995, will give rise to the obligation to pay interest. The
Promissory Note expressly provided that after 31 December 1995, default commences and the
stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following 31 December
1995, the due date of the obligation. On that date, Rivera became liable for the stipulated interest
which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995,
demand was not necessary before Rivera could be held liable for the principal amount of
120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the Spouses
Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of delay, in the
performance of their obligations is laid down on Article 117024 of the Civil Code.
Sps. Pedro and Florencia Violago vs. BA Finance Corp., et. al., G.R. No. 158262, July 21, 2008
In addressing the threshold issue of whether BA Finance is a holder in due course of the promissory
note, we must determine whether the note is a negotiable instrument and, hence, covered by the
NIL. In their appeal to the CA, petitioners argued that the promissory note is a negotiable
instrument and that the provisions of the NIL, not the Civil Code, should be applied. In the present
petition, however, petitioners claim that Article 1318 of the Civil Code14should be applied since their
consent was vitiated by fraud, and, thus, the promissory note does not carry any legal effect despite
its negotiation. Either way, the petitioners arguments deserve no merit.
The promissory note is clearly negotiable. The appellate court was correct in finding all the
requisites of a negotiable instrument present. The NIL provides:
Section 1. Form of Negotiable Instruments. An instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The more important issue now is whether or not BA Finance is a holder in due course. The
resolution of this issue will determine whether petitioners defense of fraud and nullity of the sale
could validly be raised against respondent corporation. Sec. 52 of the NIL provides:
Section 52. What constitutes a holder in due course.A holder in due course is a holder who has
taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
The law presumes that a holder of a negotiable instrument is a holder thereof in due course.
In the hands of one other than a holder in due course, a negotiable instrument is subject to the
same defenses as if it were non-negotiable.18 A holder in due course, however, holds the instrument
free from any defect of title of prior parties and from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount thereof.19 Since BA
Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object
and nullity of the sale against the corporation. The NIL considers every negotiable instrument prima
facie to have been issued for a valuable consideration.20 In Salas, we held that a party holding an
instrument may enforce payment of the instrument for the full amount thereof. As such, the maker
cannot set up the defense of nullity of the contract of sale.21 Thus, petitioners are liable to
respondent corporation for the payment of the amount stated in the instrument.
From the third party complaint to the present petition, however, petitioners pray that the veil of
corporate fiction be set aside and Avelino be adjudged directly liable to BA Finance. Petitioners
likewise pray for damages for the fraud committed upon them.
In Concept Builders, Inc. v. NLRC, we held:
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation.
xxxx
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:
1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time no separate mind, will
or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust acts in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.22
This case meets the foregoing test. VMSC is a family-owned corporation of which Avelino was
president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously
sold to Avelinos other cousin, Esmeraldo. Nowhere in the pleadings did Avelino refute the fact that
the vehicle in this case was already previously sold to Esmeraldo; he merely insisted that he cannot
be held liable because he was not a party to the transaction. The fact that Avelino and Pedro are
cousins, and that Avelino claimed to have a need to increase the sales quota, was likely among the
factors which motivated the spouses to buy the car. Avelino, knowing fully well that the vehicle was
already sold, and with abuse of his relationship with the spouses, still proceeded with the sale and
collected the down payment from petitioners. The trial court found that the vehicle was not
delivered to the spouses. Avelino clearly defrauded petitioners. His actions were the proximate
cause of petitioners loss. He cannot now hide behind the separate corporate personality of VMSC
to escape from liability for the amount adjudged by the trial court in favor of petitioners.

The fact that VMSC was not included as defendant in petitioners third party complaint does not
preclude recovery by petitioners from Avelino; neither would such non-inclusion constitute a bar to
the application of the piercing-of-the-corporate-veil doctrine. We suggested as much in Arcilla v.
Court of Appeals, an appellate proceeding involving petitioner Arcillas bid to avoid the adverse CA
decision on the argument that he is not personally liable for the amount adjudged since the same
constitutes a corporate liability which nevertheless cannot even be enforced against the corporation
which has not been impleaded as a party below. In that case, the Court found as well-taken the
CAs act of disregarding the separate juridical personality of the corporation and holding its
president, Arcilla, liable for the obligations incurred in the name of the corporation although it was
not a party to the collection suit before the trial court. An excerpt from Arcilla:

x x x In short, even if We are to assume arguendo that the obligation was incurred in the name of
the corporation, the petitioner [Arcilla] would still be personally liable therefor because for all legal
intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is
nothing more than his business conduit and alter ego. The fiction of separate juridical personality
conferred upon such corporation by law should be disregarded. Significantly, petitioner does not
seriously challenge the [CAs] application of the doctrine which permits the piercing of the
corporate veil and the disregarding of the fiction of a separate juridical personality; this is because
he knows only too well that from the beginning, he merely used the corporation for his personal
purposes.23
Consolidated Plywood Industries, Inc., et. al. vs. IFC Leasing and Acceptance Corporation, G.R. No.
72593, April 30, 1987
The core issue herein is whether or not the promissory note in question is a negotiable instrument
so as to bar completely all the available defenses of the petitioner against the respondent-assignee.
Going back to the core issue, we rule that the promissory note in question is not a negotiable
instrument.
The pertinent portion of the note is as follows:
FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the
INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY
THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P
1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24
monthly installments starting July 15, 1978 and every 15th of the month
thereafter until fully paid. ...
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer, " it cannot be denied that the promissory
note in question is not a negotiable instrument.
The instrument in order to be considered negotiablility-i.e. must contain the
so-called 'words of negotiable, must be payable to 'order' or 'bearer'. These
words serve as an expression of consent that the instrument may be
transferred. This consent is indispensable since a maker assumes greater risk
under a negotiable instrument than under a non-negotiable one. ...
xxx xxx xxx
When instrument is payable to order.
SEC. 8. WHEN PAYABLE TO ORDER. The instrument is payable to order
where it is drawn payable to the order of a specified person or to him or his
order. . . .
xxx xxx xxx
These are the only two ways by which an instrument may be made payable to
order. There must always be a specified person named in the instrument. It
means that the bill or note is to be paid to the person designated in the
instrument or to any person to whom he has indorsed and delivered the
same. Without the words "or order" or"to the order of, "the instrument is
payable only to the person designated therein and is therefore non-
negotiable. Any subsequent purchaser thereof will not enjoy the advantages of
being a holder of a negotiable instrument but will merely "step into the shoes"
of the person designated in the instrument and will thus be open to all
defenses available against the latter." (Campos and Campos, Notes and
Selected Cases on Negotiable Instruments Law, Third Edition, page 38).
(Emphasis supplied)
Therefore, considering that the subject promissory note is not a negotiable instrument, it follows
that the respondent can never be a holder in due course but remains a mere assignee of the note
in question. Thus, the petitioner may raise against the respondent all defenses available to it as
against the seller-assignor Industrial Products Marketing.
This being so, there was no need for the petitioner to implied the seller-assignor when it was sued
by the respondent-assignee because the petitioner's defenses apply to both or either of either of
them. Actually, the records show that even the respondent itself admitted to being a mere assignee
of the promissory note in question, to wit:
X x x
Secondly, even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the respondent cannot be a holder in due course for a more significant
reason.
The evidence presented in the instant case shows that prior to the sale on installment of the
tractors, there was an arrangement between the seller-assignor, Industrial Products Marketing, and
the respondent whereby the latter would pay the seller-assignor the entire purchase price and the
seller-assignor, in turn, would assign its rights to the respondent which acquired the right to collect
the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.
A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of
Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing
the sale on installment of the tractors were all executed on the same day by and among the buyer,
which is herein petitioner Consolidated Plywood Industries, Inc.; the seller-assignor which is the
Industrial Products Marketing; and the assignee-financing company, which is the respondent.
Therefore, the respondent had actual knowledge of the fact that the seller-assignor's right to collect
the purchase price was not unconditional, and that it was subject to the condition that the tractors -
sold were not defective. The respondent knew that when the tractors turned out to be defective, it
would be subject to the defense of failure of consideration and cannot recover the purchase price
from the petitioners. Even assuming for the sake of argument that the promissory note is
negotiable, the respondent, which took the same with actual knowledge of the foregoing facts so
that its action in taking the instrument amounted to bad faith, is not a holder in due course. As
such, the respondent is subject to all defenses which the petitioners may raise against the seller-
assignor. Any other interpretation would be most inequitous to the unfortunate buyer who is not
only saddled with two useless tractors but must also face a lawsuit from the assignee for the entire
purchase price and all its incidents without being able to raise valid defenses available as against
the assignor.
Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact,
which would justify its act of taking the promissory note as not amounting to bad faith.
Sections 52 and 56 of the Negotiable Instruments Law provide that: negotiating it.
 xxx xxx xxx If this opinion imposes great burdens on finance
companies it is a potent argument in favor of a rule which
SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. A holder in due win afford public protection to the general buying public
course is a holder who has taken the instrument under the following against unscrupulous dealers in personal property. . . .
conditions: (Mutual Finance Co. v. Martin, 63 So. 2d 649, 44 ALR 2d 1
[1953]) (Campos and Campos, Notes and Selected Cases
on Negotiable Instruments Law, Third Edition, p. 128).
xxx xxx xxx

In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766)
xxx xxx xxx involving similar facts, it was held that in a very real sense, the finance company was a moving force
in the transaction from its very inception and acted as a party to it. When a finance company
(c) That he took it in good faith and for value actively participates in a transaction of this type from its inception, it cannot be regarded as a
holder in due course of the note given in the transaction.
(d) That the time it was negotiated by him he had no notice of any infirmity in
the instrument of deffect in the title of the person negotiating it In like manner, therefore, even assuming that the subject promissory note is negotiable, the
respondent, a financing company which actively participated in the sale on installment of the
xxx xxx xxx subject two Allis Crawler tractors, cannot be regarded as a holder in due course of said note. It
follows that the respondent's rights under the promissory note involved in this case are subject to
all defenses that the petitioners have against the seller-assignor, Industrial Products Marketing. For
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. To constitute notice of
Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder other than
an infirmity in the instrument or defect in the title of the person negotiating
a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-
the same, the person to whom it is negotiated must have had actual
negotiable. ... "
knowledge of the infirmity or defect, or knowledge of such facts that his action
in taking the instrument amounts to bad faith. (Emphasis supplied)
Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial
and respondent appellate court erred in holding the promissory note in question to be negotiable.
We subscribe to the view of Campos and Campos that a financing company is not a holder in good
Such a ruling does not only violate the law and applicable jurisprudence, but would result in unjust
faith as to the buyer, to wit:
enrichment on the part of both the assigner- assignor and respondent assignee at the expense of
the petitioner-corporation which rightfully rescinded an inequitable contract. We note, however,
In installment sales, the buyer usually issues a note payable to the seller to that since the seller-assignor has not been impleaded herein, there is no obstacle for the
cover the purchase price. Many times, in pursuance of a previous arrangement respondent to file a civil Suit and litigate its claims against the seller- assignor in the rather unlikely
with the seller, a finance company pays the full price and the note is indorsed possibility that it so desires,
to it, subrogating it to the right to collect the price from the buyer, with
interest. With the increasing frequency of installment buying in this country, it
is most probable that the tendency of the courts in the United States to
protect the buyer against the finance company will , the finance company will
be subject to the defense of failure of consideration and cannot recover the
purchase price from the buyer. As against the argument that such a rule would
seriously affect "a certain mode of transacting business adopted throughout
the State," a court in one case stated:

It may be that our holding here will require some

changes in business methods and will impose a greater
burden on the finance companies. We think the buyer-
Mr. & Mrs. General Public-should have some protection
somewhere along the line. We believe the finance
company is better able to bear the risk of the dealer's
insolvency than the buyer and in a far better position to
protect his interests against unscrupulous and insolvent
dealers. . . .
Caltex (Phils.), Inc. vs. Court of Appeals and Security Bank and Trust Co., G.R. No. 97753. Aug. 10, 1992
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments
Law, enumerates the requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself.9 In the construction of a
bill or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the
writing may be read in the light of surrounding circumstances in order to more perfectly
understand the intent and meaning of the parties, yet as they have constituted the writing to be the
only outward and visible expression of their meaning, no other words are to be added to it or
substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may
have secretly intended as contradistinguished from what their words express, but what is the
meaning of the words they have used. What the parties meant must be determined by what they
said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy
to the transaction between them would not be in a position to know that the depositor is not the
bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go
behind the plain import of what is written thereon to unravel the agreement of the parties thereto
through facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by
the Negotiable Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in
the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in
this suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and
De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment
for the fuel products or as a security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex
Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela
Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive
upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In the law of evidence,
whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of
particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with
sufficient definiteness or particularity (a) the due date or dates of payment of the alleged
indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it,
plaintiff corporation opposed the motion. 18 Had it produced the receipt prayed for, it could have
proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote
therefrom:
 The character of the transaction between the parties is to
be determined by their intention, regardless of what
language was used or what the form of the transfer was.
If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some
other intention, it is not a pledge. However, even though
a transfer, if regarded by itself, appears to have been
absolute, its object and character might still be qualified
and explained by contemporaneous writing declaring it
to have been a deposit of the property as collateral
security. It has been said that a transfer of property by
the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a
pledge if the debt continues in inexistence and is not
discharged by the transfer, and that accordingly the use
of the terms ordinarily importing conveyance of absolute
ownership will not be given that effect in such a
transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly
indicate a transfer of absolute ownership, in the absence
of clear and unambiguous language or other
circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee
or indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case,
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we
even disregard the fact that the amount involved was not disclosed) could at the most constitute
petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such
purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof
and the subsequent disposition of such security, in the event of non-payment of the principal
obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may
also be pledged. The instrument proving the right pledged shall be delivered
to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description
of the thing pledged and the date of the pledge do not appear in a public
instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be
made of the date of a pledge contract, but a rule of substantive law prescribing a condition without
which the execution of a pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil
Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as
against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent
of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the
better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments
and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised
that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of
private respondent was not included in the stipulation of the parties and in the statement of issues
submitted by them to the trial court. 29 The issues agreed upon by them for resolution in this case
are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the
CTDs against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's outstanding account with
defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs
before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
 6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank.
An issue raised for the first time on appeal and not raised timely in the proceedings in the lower
court is barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the
parties and, consequently, issues not raised in the trial court cannot be raised for the first time on
appeal. 31

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs
would be tantamount to saying that petitioner could raise on appeal any issue. We agree with
private respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the
questioned certificates can be premised on a multitude of other legal reasons and causes of action,
of which respondent bank's supposed negligence is only one. Hence, petitioner's submission, if
accepted, would render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner
still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes,
will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are
merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may
be, may apply to the judge or court of competent jurisdiction, asking that the
principal, interest or dividends due or about to become due, be not paid a
third person, as well as in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the
part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the
issuance of a duplicate of the lost instrument. Where the provision reads "may," this word shows
that it is not mandatory but discretional. 34 The word "may" is usually permissive, not
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of
Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence, merely
established, on the one hand, a right of recourse in favor of a dispossessed owner or holder of a
bearer instrument so that he may obtain a duplicate of the same, and, on the other, an option in
favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically
restricts or prohibits the issuance a duplicate or replacement instrument sans compliance with the
procedure outlined therein, and none establishes a mandatory precedent requirement therefor.
2. Applicability of NIL
1) Romeo C. Garcia vs. Dionisio V. Llamas, G.R. No. 154127, Dec. 8, 2003
Second Issue:
Accommodation Party
Petitioner avers that he signed the promissory note merely as an accommodation party; and
that, as such, he was released as obligor when respondent agreed to extend the term of the
obligation.
This reasoning is misplaced, because the note herein is not a negotiable instrument. The note
reads:
PROMISSORY NOTE
P400,000.00
RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS,
Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City,
with interest at the rate of 5% per month or fraction thereof.
It is understood that our liability under this loan is jointly and severally [sic].
Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30]
By its terms, the note was made payable to a specific person rather than to bearer or to
order[31] -- a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence,
petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an
accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is
evidence of such intangible rights as may have been created by the assent of the parties. [32] The
promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the
promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument
to a holder for value even if, at the time of its taking, the latter knew the former to be only an
accommodation party. The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety -- the accommodation party being the
surety.[33] It is a settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promissor and debtor from the beginning. The liability is immediate and
direct.[34]
2) Firestone Tire & Rubber Co. of the Phils. vs., Court of Appeals, et. al., G.R. No. 113236,
March 5, 2001
The issue for our consideration is whether or not respondent bank should be held liable for
damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject
withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter
purchased tires from the former with special withdrawal slips drawn upon Fojas-Arca's special
savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with
Citibank. The latter credited the same to petitioner's current account, then presented the slips for
payment to respondent bank. It was at this point that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and
42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent
bank due to insufficiency of Fojas-Arca's funds on deposit. That information came about six months
from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank
then debited the amount of these withdrawal slips from petitioner's account, causing the alleged
pecuniary damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question were non-
negotiable.9 Hence, the rules governing the giving of immediate notice of dishonor of negotiable
instruments do not apply in this case.10Petitioner itself concedes this point.11 Thus, respondent bank
was under no obligation to give immediate notice that it would not make payment on the subject
withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments.
It could not expect these slips to be treated as checks by other entities. Payment or notice of
dishonor from respondent bank could not be expected immediately, in contrast to the situation
involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development
Bank, had honored and paid the previous withdrawal slips, automatically credited petitioner's
current account with the amount of the subject withdrawal slips, then merely waited for the same to
be honored and paid by respondent bank. It presumed that the withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal
slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies
in its freedom to circulate freely as a substitute for money.12 The withdrawal slips in question lacked
this character.
A bank is under obligation to treat the accounts of its depositors with meticulous care, whether
such account consists only of a few hundred pesos or of millions of pesos.13 The fact that the other
withdrawal slips were honored and paid by respondent bank was no license for Citibank to
presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its
fiduciary duty to treat the accounts of its clients with the highest degree of care.14
In the ordinary and usual course of banking operations, current account deposits are accepted by
the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or
representative, who indicates therein the current account number to which the deposit is to be
credited, the name of the depositor or current account holder, the date of the deposit, and the
amount of the deposit either in cash or in check.15

The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as
petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit.
But having erroneously accepted them as such, Citibank and petitioner as account-holder
must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could
not now shift the risk and hold private respondent liable for their admitted mistake.
3. Kinds of Negotiable Instruments The Prosecution established that Ligaray had released the goods to Caada because of the
postdated check the latter had given to him; and that the check was dishonored when presented
Bearer instrument for payment because of the insufficiency of funds.

1) People of the Phils. v. Gilbert Reyes Wagas, G.R. No. 157943, In every criminal prosecution, however, the identity of the offender, like the crime itself, must be
established by proof beyond reasonable doubt.28 In that regard, the Prosecution did not establish
The circumstances beg the question: did the Prosecution establish beyond reasonable doubt the beyond reasonable doubt that it was Wagas who had defrauded Ligaray by issuing the check.
existence of all the elements of the crime of estafa as charged, as well as the identity of the
perpetrator of the crime? Firstly, Ligaray expressly admitted that he did not personally meet the person with whom he was
transacting over the telephone, thus:
Ruling
Q: On April 30, 1997, do you remember having a transaction with the accused in this case?
The appeal is meritorious. A: Yes, sir. He purchased two hundred bags of rice from me.
Q: How did this purchase of rice transaction started? (sic)
Article 315, paragraph 2(d) of the Revised Penal Code, as amended, provides: A: He talked with me over the phone and told me that he would like to purchase two
hundred bags of rice and he will just issue a check.29

Article 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by: Even after the dishonor of the check, Ligaray did not personally see and meet whoever he had dealt
with and to whom he had made the demand for payment, and that he had talked with him only
over the telephone, to wit:
xxxx

Q: After the check was (sic) bounced, what did you do next?
2. By means of any of the following false pretenses or fraudulent acts executed prior to or A: I made a demand on them.
simultaneously with the commission of the fraud: Q: How did you make a demand?
A: I called him over the phone.
xxxx Q: Who is that "him" that you are referring to?
A: Gilbert Wagas.30
(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no
funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the Secondly, the check delivered to Ligaray was made payable to cash. Under the Negotiable
check. The failure of the drawer of the check to deposit the amount necessary to cover his check Instruments Law, this type of check was payable to the bearer and could be negotiated by mere
within three (3) days from receipt of notice from the bank and/or the payee or holder that said delivery without the need of an indorsement.31 This rendered it highly probable that Wagas had
check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit issued the check not to Ligaray, but to somebody else like Caada, his brother-in-law, who then
constituting false pretense or fraudulent act. negotiated it to Ligaray.1wphi1 Relevantly, Ligaray confirmed that he did not himself see or meet
Wagas at the time of the transaction and thereafter, and expressly stated that the person who
In order to constitute estafa under this statutory provision, the act of postdating or issuing a check signed for and received the stocks of rice was Caada.
in payment of an obligation must be the efficient cause of the defraudation. This means that the
offender must be able to obtain money or property from the offended party by reason of the It bears stressing that the accused, to be guilty of estafa as charged, must have used the check in
issuance of the check, whether dated or postdated. In other words, the Prosecution must show that order to defraud the complainant. What the law punishes is the fraud or deceit, not the mere
the person to whom the check was delivered would not have parted with his money or property issuance of the worthless check. Wagas could not be held guilty of estafa simply because he had
were it not for the issuance of the check by the offender.25 issued the check used to defraud Ligaray. The proof of guilt must still clearly show that it had been
Wagas as the drawer who had defrauded Ligaray by means of the check.
The essential elements of the crime charged are that: (a) a check is postdated or issued in payment
of an obligation contracted at the time the check is issued; (b) lack or insufficiency of funds to cover SO ORDERED.
the check; and (c) damage to the payee thereof.26 It is the criminal fraud or deceit in the issuance of
a check that is punishable, not the non-payment of a debt.27 Prima facie evidence of deceit exists by
law upon proof that the drawer of the check failed to deposit the amount necessary to cover his
check within three days from receipt of the notice of dishonor.
 2) PNB vs. Erlando T. Rodriguez, et. al., G.R. No. 170325, Sept. 26, 2008, Sept. 4, 2013
Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer and
who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend
for the named payees to receive the proceeds. Thus, they are bearer instruments that could be
validly negotiated by mere delivery. Further, testimonial and documentary evidence presented
during trial amply proved that spouses Rodriguez and the officers of PEMSLA conspired with each
other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining
finality to the prejudice of innocent parties. A court discovering an erroneous judgment before it
becomes final may, motu proprio or upon motion of the parties, correct its judgment with the
singular objective of achieving justice for the litigants.10
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The
Court does not sanction careless disposition of cases by courts of justice. The highest degree of
diligence must go into the study of every controversy submitted for decision by litigants. Every issue
and factual detail must be closely scrutinized and analyzed, and all the applicable laws judiciously
studied, before the promulgation of every judgment by the court. Only in this manner will errors in
judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the
check is considered as a bearer instrument. A check is "a bill of exchange drawn on a bank payable
on demand."11 It is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to
the order of a specified person or to him or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein
with reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.12 (Underscoring
supplied)
The distinction between bearer and order instruments lies in their manner of negotiation. Under
Section 30 of the NIL, an order instrument requires an indorsement from the payee or holder
before it may be validly negotiated. A bearer instrument, on the other hand, does not require an
indorsement to be validly negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee the holder thereof. If payable to
bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the
holder completed by delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of
the NIL, a check payable to a specified payee may nevertheless be considered as a bearer
instrument if it is payable to the order of a fictitious or non-existing person, and such fact is known
to the person making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas at si
Maganda," who are well-known characters in Philippine mythology, are bearer instruments because
the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in the NIL. It is for this
reason that We look elsewhere for guidance. Court rulings in the United States are a logical starting
point since our law on negotiable instruments was directly lifted from the Uniform Negotiable
Instruments Law of the United States.13
A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious"
if the maker of the check did not intend for the payee to in fact receive the proceeds of the check.
This usually occurs when the maker places a name of an existing payee on the check for
convenience or to cover up an illegal activity.14 Thus, a check made expressly payable to a non-
fictitious and existing person is not necessarily an order instrument. If the payee is not the intended
recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is
a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the
loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that
can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to
negotiate the check by placing his indorsement thereon. And since the maker knew this limitation,
he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of
controversy, the drawer of the check will bear the loss. This rule is justified for otherwise, it will be
most convenient for the maker who desires to escape payment of the check to always deny the
validity of the indorsement. This despite the fact that the fictitious payee was purposely named
without any intention that the payee should receive the proceeds of the check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.16 In the said
case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its authorized
signatories. Martin drew seven checks payable to the German Savings Fund Company Building
Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without
authority from the latter. Martin was also an officer of the GSFCBA but did not have signing
authority. At the back of the checks, Martin placed the rubber stamp of the GSFCBA and signed his
own name as indorsement. He then successfully drew the funds from Liberty Insurance Bank for his
own personal profit. When the corporation filed an action against the bank to recover the amount
of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did not
intend for the specified payee to have any part in the transactions, the payee is considered as a
fictitious payee. The check is then considered as a bearer instrument to be validly negotiated by
mere delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was
authorized to make payment to the bearer of the check, regardless of whether prior indorsements
were genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company,
Inc.18 upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the loss to
the drawer of the check who was in a better position to prevent the loss in the first place. Due care
is not even required from the drawee or depositary bank in accepting and paying the checks. The
effect is that a showing of negligence on the part of the depositary bank will not defeat the
protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter,
will work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith
is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
Said the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances which
might have well induced a prudent banker to investigate and other permutations of negligence are
not relevant considerations under Section 3-405 x x x. Rather, there is a "commercial bad faith"
exception to UCC 3-405, applicable when the transferee "acts dishonestly where it has actual
knowledge of facts and circumstances that amount to bad faith, thus itself becoming a participant
in a fraudulent scheme. x x x Such a test finds support in the text of the Code, which omits a
standard of care requirement from UCC 3-405 but imposes on all parties an obligation to act with
"honesty in fact." x x x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank
transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted
that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the payees
were actual, existing, and living persons who were members of PEMSLA that had a rediscounting
arrangement with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were "fictitious" in its
broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not
intend for the named payees to be part of the transaction involving the checks. At most, the banks
thesis shows that the payees did not have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not tantamount to a lack of intention on the
part of respondents-spouses that the payees would not receive the checks proceeds. Considering
that respondents-spouses were transacting with PEMSLA and not the individual payees, it is
understandable that they relied on the information given by the officers of PEMSLA that the payees
would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both lower
courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that
the named payees were the intended recipients of the checks proceeds. The bank failed to satisfy a
requisite condition of a fictitious-payee situation that the maker of the check intended for the
payee to have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-
payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the
drawee bank bears the loss.20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers
accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the
named payees. It bears stressing that order instruments can only be negotiated with a valid
indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed
by the payee is apparently grossly negligent in its operations.21 This Court has recognized the
unique public interest possessed by the banking industry and the need for the people to have full
trust and confidence in their banks.22 For this reason, banks are minded to treat their customers
accounts with utmost care, confidence, and honesty.23
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature
of the drawer and to pay the check strictly in accordance with the drawers instructions, i.e., to the
named payee in the check. It should charge to the drawers accounts only the payables authorized
by the latter. Otherwise, the drawee will be violating the instructions of the drawer and it shall be
liable for the amount charged to the drawers account.24

In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against
respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to ascertain the
regularity of the indorsements, and the genuineness of the signatures on the checks before
accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with
the instructions of the drawers. Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of
indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in
strict accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the
values of the checks not to the named payees or their order, but to PEMSLA, a third party to the
transaction between the drawers and the payees.alf-ITC

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness
of bank employees is indispensable to maintain the stability of the banking industry. Thus, banks
are enjoined to be extra vigilant in the management and supervision of their employees. In Bank of
the Philippine Islands v. Court of Appeals,25 this Court cautioned thus:

Banks handle daily transactions involving millions of pesos. By the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees. For obvious reasons, the banks are expected
to exercise the highest degree of diligence in the selection and supervision of their employees.26

PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits
of checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank employees
that caused the loss, the bank should be held liable.27

PNBs argument that there is no loss to compensate since no demand for payment has been made
by the payees must also fail. Damage was caused to respondents-spouses when the PEMSLA
checks they deposited were returned for the reason "Account Closed." These PEMSLA checks were
the corresponding payments to the Rodriguez checks. Since they could not encash the PEMSLA
checks, respondents-spouses were unable to collect payments for the amounts they had advanced.

A bank that has been remiss in its duty must suffer the consequences of its negligence. Being
issued to named payees, PNB was duty-bound by law and by banking rules and procedure to
require that the checks be properly indorsed before accepting them for deposit and payment. In
fine, PNB should be held liable for the amounts of the checks.
B. Completion and Delivery
1. Insertion of Date
2. Completion of Blanks
John Dy vs. People of the Phils., et. al., G.R. No. 158312, Nov. 14, 2008
We find that the petition is partly meritorious.
Before an accused can be held liable for estafa under Article 315, paragraph 2(d) of the Revised
Penal Code, as amended by Republic Act No. 4885,12 the following elements must concur: (1)
postdating or issuance of a check in payment of an obligation contracted at the time the check was
issued; (2) insufficiency of funds to cover the check; and (3) damage to the payee thereof.13 These
elements are present in the instant case.
Section 191 of the Negotiable Instruments Law14 defines "issue" as the first delivery of an instrument,
complete in form, to a person who takes it as a holder. Significantly, delivery is the final act essential
to the negotiability of an instrument. Delivery denotes physical transfer of the instrument by the
maker or drawer coupled with an intention to convey title to the payee and recognize him as a
holder.15 It means more than handing over to another; it imports such transfer of the instrument to
another as to enable the latter to hold it for himself.16
In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its
issuance invalid. When the checks were delivered to Lim, through his employee, he became a
holder with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim's
accountant.
The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive:
SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by
filling up the blanks therein. And a signature on a blank paper delivered by the person
making the signature in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as such for any amount. .
(Emphasis supplied.)
Hence, the law merely requires that the instrument be in the possession of a person other than the
drawer or maker. From such possession, together with the fact that the instrument is wanting in a
material particular, the law presumes agency to fill up the blanks.17 Because of this, the burden of
proving want of authority or that the authority granted was exceeded, is placed on the person
questioning such authority.18 Petitioner failed to fulfill this requirement.
Next, petitioner claims failure of consideration. Nevertheless, in a letter19 dated November 10, 1992,
he expressed willingness to pay W.L. Foods, or to replace the dishonored checks. This was a clear
acknowledgment of receipt of the goods, which gave rise to his duty to maintain or deposit
sufficient funds to cover the amount of the checks.
More significantly, we are not swayed by petitioner's arguments that the single incident of dishonor
and his absence when the checks were delivered belie fraud. Indeed damage and deceit are
essential elements of the offense and must be established with satisfactory proof to warrant
conviction.20 Deceit as an element of estafa is a specie of fraud. It is actual fraud which consists in
any misrepresentation or contrivance where a person deludes another, to his hurt. There is deceit
when one is misled -- by guile, trickery or by other means -- to believe as true what is really false.21
Prima facie evidence of deceit was established against petitioner with regard to FEBTC Check No.
553615 which was dishonored for insufficiency of funds. The letter22 of petitioner's counsel dated
November 10, 1992 shows beyond reasonable doubt that petitioner received notice of the dishonor
of the said check for insufficiency of funds. Petitioner, however, failed to deposit the amounts
necessary to cover his check within three banking days from receipt of the notice of dishonor.
Hence, as provided for by law,23 the presence of deceit was sufficiently proven.
Petitioner failed to overcome the said proof of deceit. The trial court found no pre-existing
obligation between the parties. The existence of prior transactions between Lim and Dy alone did
not rule out deceit because each transaction was separate, and had a different consideration from
the others. Even as petitioner was absent when the goods were delivered, by the principle of
agency, delivery of the checks by his driver was deemed as his act as the employer. The evidence
shows that as a matter of course, Dy, or his employee, would pay W.L. Foods in either cash or check
upon pick up of the stocks of snack foods at the latter's branch or main office. Despite their two-
year standing business relations prior to the issuance of the subject check, W.L Foods employees
would not have parted with the stocks were it not for the simultaneous delivery of the check issued
by petitioner.24Aside from the existing business relations between petitioner and W.L. Foods, the
primary inducement for the latter to part with its stocks of snack foods was the issuance of the
check in payment of the value of the said stocks.
In a number of cases,25 the Court has considered good faith as a defense to a charge of estafa by
postdating a check. This good faith may be manifested by making arrangements for payment with
the creditor and exerting best efforts to make good the value of the checks. In the instant case
petitioner presented no proof of good faith. Noticeably absent from the records is sufficient proof
of sincere and best efforts on the part of petitioner for the payment
Second, did petitioner violate B.P. Blg. 22?
Petitioner argues that the blank checks were not valid orders for the bank to pay the holder of such
checks. He reiterates lack of knowledge of the insufficiency of funds and reasons that the checks
could not have been issued to apply on account or for value as he did not obtain delivery of the
goods.
The OSG maintains that the guilt of petitioner has been proven beyond reasonable doubt. It cites
pieces of evidence that point to Dy's culpability: Maraca's acknowledgment that the checks were
issued to W.L. Foods as consideration for the snacks; Lim's testimony proving that Dy received a
copy of the demand letter; the bank manager's confirmation that petitioner had insufficient balance
to cover the checks; and Dy's failure to settle his obligation within five (5) days from dishonor of the
checks.
Once again, we find the petition to be meritorious in part.
The elements of the offense penalized under B.P. Blg. 22 are as follows: (1) the making, drawing and
issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or
issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank
for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the
check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop payment.28 The case at bar
satisfies all these elements.
During the joint pre-trial conference of this case, Dy admitted that he issued the checks, and that
the signatures appearing on them were his.29 The facts reveal that the checks were issued in blank
because of the uncertainty of the volume of products to be retrieved, the discount that can be
availed of, and the deduction for bad orders. Nevertheless, we must stress that what the law
punishes is simply the issuance of a bouncing check and not the purpose for which it was issued
nor the terms and conditions relating thereto.30 If inquiry into the reason for which the checks are
issued, or the terms and conditions of their issuance is required, the public's faith in the stability and
commercial value of checks as currency substitutes will certainly erode.31
Moreover, the gravamen of the offense under B.P. Blg. 22 is the act of making or issuing a
worthless check or a check that is dishonored upon presentment for payment. The act effectively
declares the offense to be one of malum prohibitum. The only valid query, then, is whether the law
has been breached, i.e., by the mere act of issuing a bad check, without so much regard as to the
criminal intent of the issuer.32 Indeed, non-fulfillment of the obligation is immaterial. Thus,
petitioner's defense of failure of consideration must likewise fall. This is especially so since as stated
above, Dy has acknowledged receipt of the goods.
On the second element, petitioner disputes notice of insufficiency of funds on the basis of the
check being issued in blank. He relies on Dingle v. Intermediate Appellate Court33 and Lao v. Court
of Appeals34 as his authorities. In both actions, however, the accused were co-signatories, who were
neither apprised of the particular transactions on which the blank checks were issued, nor given
notice of their dishonor. In the latter case, Lao signed the checks without knowledge of the
insufficiency of funds, knowledge she was not expected or obliged to possess under the
organizational structure of the corporation.35 Lao was only a minor employee who had nothing to
do with the issuance, funding and delivery of checks.36 In contrast, petitioner was the proprietor of
Dyna Marketing and the sole signatory of the checks who received notice of their dishonor.
Significantly, under Section 237 of B.P. Blg. 22, petitioner was prima facie presumed to know of the
inadequacy of his funds with the bank when he did not pay the value of the goods or make
arrangements for their payment in full within five (5) banking days upon notice. His letter dated
November 10, 1992 to Lim fortified such presumption.
Undoubtedly, Dy violated B.P. Blg. 22 for issuing FEBTC Check No. 553615. When said check was
dishonored for insufficient funds and stop payment order, petitioner did not pay or make
arrangements with the bank for its payment in full within five (5) banking days.
Petitioner should be exonerated, however, for issuing FEBTC Check No. 553602, which was
dishonored for the reason DAUD or drawn against uncollected deposit. When the check was
presented for payment, it was dishonored by the bank because the check deposit made by
petitioner, which would make petitioner's bank account balance more than enough to cover the
face value of the subject check, had not been collected by the bank.
In Tan v. People,38 this Court acquitted the petitioner therein who was indicted under B.P. Blg. 22,
upon a check which was dishonored for the reason DAUD, among others. We observed that:
In the second place, even without relying on the credit line, petitioner's bank account
covered the check she issued because even though there were some deposits that were
still uncollected the deposits became "good" and the bank certified that the check was
"funded."39
To be liable under Section 140 of B.P. Blg. 22, the check must be dishonored by the drawee bank for
insufficiency of funds or credit or dishonored for the same reason had not the drawer, without any
valid cause, ordered the bank to stop payment.
In the instant case, even though the check which petitioner deposited on July 20, 1992 became
good only five (5) days later, he was considered by the bank to retroactively have had P160,659.39
in his account on July 22, 1992. This was more than enough to cover the check he issued to
respondent in the amount of P106,579.60. Under the circumstance obtaining in this case, we find
the petitioner had issued the check, with full ability to abide by his commitment41 to pay his
purchases.
Significantly, like Article 315 of the Revised Penal Code, B.P. Blg. 22 also speaks only of insufficiency
of funds and does not treat of uncollected deposits. To repeat, we cannot interpret the law in such
a way as to expand its provision to encompass the situation of uncollected deposits because it
would make the law more onerous on the part of the accused. Again, criminal statutes are strictly
construed against the Government and liberally in favor of the accused.42
As regards petitioner's civil liability, this Court has previously ruled that an accused may be held
civilly liable where the facts established by the evidence so warrant.43 The rationale for this is simple.
The criminal and civil liabilities of an accused are separate and distinct from each other. One is
meant to punish the offender while the other is intended to repair the damage suffered by the
aggrieved party. So, for the purpose of indemnifying the latter, the offense need not be proved
beyond reasonable doubt but only by preponderance of evidence.44
We therefore sustain the appellate court's award of damages to W.L. Foods in the total amount
of P333,373.96, representing the sum of the checks petitioner issued for goods admittedly delivered
to his company.
As to the appropriate penalty, petitioner was charged with estafa under Article 315, paragraph 2(d)
of the Revised Penal Code, as amended by Presidential Decree No. 81845 (P.D. No. 818).
Under Section 146 of P.D. No. 818, if the amount of the fraud exceeds P22,000, the penalty
of reclusin temporal is imposed in its maximum period, adding one year for each
additional P10,000 but the total penalty shall not exceed thirty (30) years, which shall be
termed reclusin perpetua.47Reclusin perpetua is not the prescribed penalty for the offense, but
merely describes the penalty actually imposed on account of the amount of the fraud involved.

3. Incomplete but delivered Instruments
1) Alvin Patrimonio vs. Napoleon Gutierrez , et. al. G.R. No. 187769, June 04, 2014
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The
main point of inquiry of whether the contract of loan may be nullified, hinges on the very existence
of the contract of loan a question that, as presented, is essentially, one of fact. Whether the
petitioner authorized the borrowing; whether Gutierrez completely filled out the subject check
strictly under the petitioners authority; and whether Marasigan is a holder in due course are also
questions of fact, that, as a general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for
review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no
exceptions. One notable exception is when the findings off act of both the trial court and the CA
are conflicting, making their review necessary.5 In the present case, the tribunals below arrived at
two conflicting factual findings, albeit with the same conclusion, i.e., dismissal of the complaint for
nullity of the loan. Accordingly, we will examine the parties evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the
borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly
requires a written authority when the loan is contracted through an agent. The petitioner contends
that absent such authority in writing, he should not be held liable for the face value of the check
because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds
himself to render some service or to do something in representation or on behalf of another, with
the consent or authority of the latter." Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral. However, it must be written when the law
6 him to borrow using your money?
requires a specific form, for example, in a sale of a piece of land or any interest therein through an
agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an
agent can loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation
of the things which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et
al.,7 that the requirement under Article 1878 of the Civil Code refers to the nature of the
authorization and not to its form. Be that as it may, the authority must be duly established by
competent and convincing evidence other than the self serving assertion of the party claiming that
such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form.
The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written, the one vital thing being that it shall be express.
And more recently, We stated that, if the special authority is not written, then it must be duly
established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority.
And while the same does not state that the special authority be in writing the Court has every
reason to expect that, if not in writing, the same be duly established by evidence other than the
self-serving assertion of counsel himself that such authority was verbally given him.(Home
Insurance Company vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez,
52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for
Being Void; Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf
of the petitioner.1wphi1Records do not show that the petitioner executed any special power of
attorney (SPA) in favor of Gutierrez. In fact, the petitioners testimony confirmed that he never
authorized Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow money in
his behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioners acts of pre-signing the blank checks and releasing
them to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out
and contract the loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of
the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa
secured by real estate mortgages in the name of East Cordillera Mining Corporation, in the absence
of an SPA conferring authority on de Villa, there is no basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney. In the case at bar, no special power of attorney
conferring authority on de Villa was ever presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to
borrow money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his
death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had authorized
Lilian to obtain a loan from him.
xxxx
Petitioners testimony failed to categorically state, however, whether the loan was made on behalf
of respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the
statement of account marked as Exhibit "A" states that the amount was received by Lilian "in behalf
of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that
she was acting for and in behalf of respondent. She thus bound herself in her personal capacity and
not as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x x
(emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf
of the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus,
the petitioner is not bound by the parties loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally
sufficient because the authority to enter into a loan can never be presumed. The contract of agency
and the special fiduciary relationship inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only the fact of agency, but also its nature
and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in
Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery
of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not
take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to beno
contract of agency between Yambao and Andan so as to bind the latter for the acts of the former.
Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but
her "messenger" or "part-time employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the consent of both parties is essential,
the principal consents that the other party, the agent, shall act on his behalf, and the agent
consents so to act. It must exist as a fact. The law makes no presumption thereof. The person
alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and
extent. This is more imperative when it is considered that the transaction dealt with involves checks,
which are not legal tender, and the creditor may validly refuse the same as payment of
obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy
of the SPA in favor of the latter and without verifying from the petitioner whether he had
authorized the borrowing of money or release of the check. He was thus bound by the risk
accompanying his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latters Consent
Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any
other contract, is subject to the rules governing the requisites and validity of contracts in
general.13 Article 1318 of the Civil Code14enumerates the essential requisites for a valid contract,
namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential
element of consent. We agree with the petitioner. As we explained above, Gutierrez did not have
the petitioners written/verbal authority to enter into a contract of loan. While there may be a
meeting of the minds between Gutierrez and Marasigan, such agreement cannot bind the
petitioner whose consent was not obtained and who was not privy to the loan agreement. Hence,
only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the
hands of Marasigan. This act, however, does not constitute sufficient authority to borrow money in
his behalf and neither should it be construed as petitioners grant of consent to the parties loan
agreement. Without any evidence to prove Gutierrez authority, the petitioners signature in the
check cannot be taken, even remotely, as sufficient authorization, much less, consent to the
contract of loan. Without the consent given by one party in a purported contract, such contract
could not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be
made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person making the signature in order
that the paper may be converted into a negotiable instrument operates as a prima facie authority
to fill it up as such for any amount. In order, however, that any such instrument when completed
may be enforced against any person who became a party thereto prior to its completion, it must be
filled up strictly in accordance with the authority given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with
the authority given and within a reasonable time.
completely filled out strictly under the authority he has given and second, Marasigan was not a
holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good
faith and for value." It also provides in Section 52(d) that in order that one may be a holder in due
course, it is necessary that at the time it was negotiated to him he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which
could beset up against a prior holder of the instrument.18 It means that he does not have any
knowledge of fact which would render it dishonest for him to take a negotiable paper. The absence
of the defense, when the instrument was taken, is the essential element of good faith.19

This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or As held in De Ocampo v. Gatchalian:20
drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely
In order to show that the defendant had "knowledge of such facts that his action in taking the
requires that the instrument be in the possession of a person other than the drawer or maker and
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact
from such possession, together with the fact that the instrument is wanting in a material particular,
fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show
the law presumes agency to fill up the blanks.16
that the defendant had notice that there was something wrong about his assignor's acquisition of
title, although he did not have notice of the particular wrong that was committed.
In order however that one who is not a holder in due course can enforce the instrument against a
party prior to the instruments completion, two requisites must exist: (1) that the blank must be filled
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way
strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time.
tainted with fraud. It is not necessary that he should know the particulars or even the nature of the
If it was proven that the instrument had not been filled up strictly in accordance with the authority
fraud, since all that is required is knowledge of such facts that his action in taking the note
given and within a reasonable time, the maker can set this up as a personal defense and avoid
amounted bad faith.
liability. However, if the holder is a holder in due course, there is a conclusive presumption that
authority to fill it up had been given and that the same was not in excess of authority.17
The term bad faith does not necessarily involve furtive motives, but means bad faith in a
commercial sense. The manner in which the defendants conducted their Liberty Loan department
In the present case, the petitioner contends that there is no legal basis to hold him liable both
provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked."
under the contract and loan and under the check because: first, the subject check was not
Although gross negligence does not of itself constitute bad faith, it is evidence from which bad faith
may be inferred. The circumstances thrust the duty upon the defendants to make further inquiries
and they had no right to shut their eyes deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigans knowledge that the petitioner is not a party or a privy to the
contract of loan, and correspondingly had no obligation or liability to him, renders him dishonest,
hence, in bad faith
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a
possessor of the instrument is prima facie a holder in due course is inapplicable. As correctly noted
by the CA, his inaction and failure to verify, despite knowledge of that the petitioner was not a party
to the loan, may be construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already
totally barred from recovery. The NIL does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument.22 The only disadvantage of a holder who is
not in due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable.23 Among such defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of
the authority he gave. He points to his instruction not to use the check without his prior approval
and argues that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the
blanks and use the check.1wphi1 To repeat, petitioner gave Gutierrez pre-signed checks to be used
in their business provided that he could only use them upon his approval. His instruction could not
be any clearer as Gutierrez authority was limited to the use of the checks for the operation of their
business, and on the condition that the petitioners prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or negotiation)once the check is
completed. In other words, only the authority to complete the check is presumed. Further, the law
used the term "prima facie" to underscore the fact that the authority which the law accords to a
holder is a presumption juris tantumonly; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.
2) Bank of America NT & SA vs. Philippine Racing Club, G.R. No. 150228, July 30, 2009
From the discussions of both parties in their pleadings, the key issue to be resolved in the present
case is whether the proximate cause of the wrongful encashment of the checks in question was due
to (a) petitioners failure to make a verification regarding the said checks with the respondent in
view of the misplacement of entries on the face of the checks or (b) the practice of the respondent
of pre-signing blank checks and leaving the same with its employees.
Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the
aforesaid checks. Invoking Sections 1267 and 1858 of the Negotiable Instruments Law (NIL),
petitioner claims that its duty as a drawee bank to a drawer-client maintaining a checking account
with it is to pay orders for checks bearing the drawer-clients genuine signatures. The genuine
signatures of the clients duly authorized signatories affixed on the checks signify the order for
payment. Thus, pursuant to the said obligation, the drawee bank has the duty to determine
whether the signatures appearing on the check are the drawer-clients or its duly authorized
signatories. If the signatures are genuine, the bank has the unavoidable legal and contractual duty
to pay. If the signatures are forged and falsified, the drawee bank has the corollary, but equally
unavoidable legal and contractual, duty not to pay.9
Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the
drawer before encashing a check only when the check bears a material alteration. A material
alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable,
the time or place of payment, the number or relations of the parties, the currency in which payment
is to be made or one which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect. With respect to
the checks at issue, petitioner points out that they do not contain any material alteration.10 This is a
fact which was affirmed by the trial court itself.11
There is no dispute that the signatures appearing on the subject checks were genuine signatures of
the respondents authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were
respondents President and Vice-President for Finance, respectively. Both pre-signed the said
checks since they were both scheduled to go abroad and it was apparently their practice to leave
with the company accountant checks signed in black to answer for company obligations that might
fall due during the signatories absence. It is likewise admitted that neither of the subject checks
contains any material alteration or erasure.
However, on the blank space of each check reserved for the payee, the following typewritten words
appear: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the typewritten word,
"CASH." On the blank reserved for the amount, the same amount of One Hundred Ten Thousand
Pesos was indicated with the use of a check writer. The presence of these irregularities in each
check should have alerted the petitioner to be cautious before proceeding to encash them which it
did not do.
It is well-settled that banks are engaged in a business impressed with public interest, and it is their
duty to protect in return their many clients and depositors who transact business with them. They
have the obligation to treat their clients account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is
more than that of a good father of a family.12
Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below
the typewritten word "CASH," expressed in words, is the very same amount indicated in figures by
means of a check writer on the amount portion of the check. The amount stated in words is,
therefore, a mere reiteration of the amount stated in figures. Petitioner emphasizes that a
reiteration of the amount in words is merely a repetition and that a repetition is not an alteration
which if present and material would have enjoined it to commence verification with respondent.13
We do not agree with petitioners myopic view and carefully crafted defense. Although not in the
strict sense "material alterations," the misplacement of the typewritten entries for the payee and the
amount on the same blank and the repetition of the amount using a check writer were glaringly
obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the
checks and the repetition of the entries was possibly an attempt to rectify the mistake. Also, if the
check had been filled up by the person who customarily accomplishes the checks of respondent, it
should have occurred to petitioners employees that it would be unlikely such mistakes would be
made. All these circumstances should have alerted the bank to the possibility that the holder or the
person who is attempting to encash the checks did not have proper title to the checks or did not
have authority to fill up and encash the same. As noted by the CA, petitioner could have made a
simple phone call to its client to clarify the irregularities and the loss to respondent due to the
encashment of the stolen checks would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained from
respondent the authenticity of the subject checks or the accuracy of the entries therein not only
because of the presence of highly irregular entries on the face of the checks but also of the
decidedly unusual circumstances surrounding their encashment. Respondents witness testified that
for checks in amounts greater than Twenty Thousand Pesos (20,000.00) it is the companys
practice to ensure that the payee is indicated by name in the check.14 This was not rebutted by
petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to "CASH"
for substantial amounts such as in this case. If each irregular circumstance in this case were taken
singly or isolated, the banks employees might have been justified in ignoring them. However, the
confluence of the irregularities on the face of the checks and circumstances that depart from the
usual banking practice of respondent should have put petitioners employees on guard that the
checks were possibly not issued by the respondent in due course of its business. Petitioners subtle
sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care
and diligence required of it as a banking institution.
Indeed, taking this with the testimony of petitioners operations manager that in case of an
irregularity on the face of the check (such as when blanks were not properly filled out) the bank
may or may not call the client depending on how busy the bank is on a particular day,15 we are
even more convinced that petitioners safeguards to protect clients from check fraud are arbitrary
and subjective. Every client should be treated equally by a banking institution regardless of the
amount of his deposits and each client has the right to expect that every centavo he entrusts to a
bank would be handled with the same degree of care as the accounts of other clients. Perforce, we
find that petitioner plainly failed to adhere to the high standard of diligence expected of it as a
banking institution.
In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections
1416 and 1617 of the NIL, it could validly presume, upon presentation of the checks, that the party
who filled up the blanks had authority and that a valid and intentional delivery to the party
presenting the checks had taken place. Thus, in petitioners view, the sole blame for this debacle
should be shifted to respondent for having its signatories pre-sign and deliver the subject
checks.18 Petitioner argues that there was indeed delivery in this case because, following American
jurisprudence, the gross negligence of respondents accountant in safekeeping the subject checks
which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped
from claiming non-delivery of the instrument.19
Petitioners contention would have been correct if the subject checks were correctly and properly
filled out by the thief and presented to the bank in good order. In that instance, there would be
nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it
could validly presume that there was proper delivery to the holder. The bank could not be faulted if
it encashed the checks under those circumstances. However, the undisputed facts plainly show that
there were circumstances that should have alerted the bank to the likelihood that the checks were
not properly delivered to the person who encashed the same. In all, we see no reason to depart
from the finding in the assailed CA Decision that the subject checks are properly characterized as
incomplete and undelivered instruments thus making Section 1520 of the NIL applicable in this case.
However, we do agree with petitioner that respondents officers practice of pre-signing of blank
checks should be deemed seriously negligent behavior and a highly risky means of purportedly
ensuring the efficient operation of businesses. It should have occurred to respondents officers and
managers that the pre-signed blank checks could fall into the wrong hands as they did in this case
where the said checks were stolen from the company accountant to whom the checks were
entrusted.
Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss,
petitioner will still emerge as the party foremost liable in this case. In instances where both parties
are at fault, this Court has consistently applied the doctrine of last clear chance in order to assign
liability.
In Westmont Bank v. Ong,21 we ruled:
[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the
subject checks had it exercised due diligence and followed the proper and regular banking
procedures in clearing checks. As we had earlier ruled, the one who had a last clear opportunity to
avoid the impending harm but failed to do so is chargeable with the consequences
thereof.22 (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on
the part of respondent because, even if we concur that the latter was indeed negligent in pre-
signing blank checks, the former had the last clear chance to avoid the loss. To reiterate, petitioners
own operations manager admitted that they could have called up the client for verification or
confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to
avert the injury that befell the respondent. Failing to make the necessary verification due to the
volume of banking transactions on that particular day is a flimsy and unacceptable excuse,
considering that the "banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the appropriate standard
of diligence must be a high degree of diligence, if not the utmost diligence."23 Petitioners
negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of the NCC,24 it must
suffer the consequence of said negligence.
In the interest of fairness, however, we believe it is proper to consider respondents own negligence
to mitigate petitioners liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury,
he cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendants lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded.1avvph!1
Explaining this provision in Lambert v. Heirs of Ray Castillon,25 the Court held:
The underlying precept on contributory negligence is that a plaintiff who is partly responsible for
his own injury should not be entitled to recover damages in full but must bear the consequences of
his own negligence. The defendant must thus be held liable only for the damages actually caused
by his negligence. xxx xxx xxx
As we previously stated, respondents practice of signing checks in blank whenever its authorized
bank signatories would travel abroad was a dangerous policy, especially considering the lack of
evidence on record that respondent had appropriate safeguards or internal controls to prevent the
pre-signed blank checks from falling into the hands of unscrupulous individuals and being used to
commit a fraud against the company. We cannot believe that there was no other secure and
reasonable way to guarantee the non-disruption of respondents business. As testified to by
petitioners expert witness, other corporations would ordinarily have another set of authorized bank
signatories who would be able to sign checks in the absence of the preferred signatories.26 Indeed,
if not for the fortunate happenstance that the thief failed to properly fill up the subject checks,
respondent would expectedly take the blame for the entire loss since the defense of forgery of a
drawers signature(s) would be unavailable to it. Considering that respondent knowingly took the
risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that
respondent shares in the responsibility for the loss.
We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case
from respondents accountant turned out to be another employee, purportedly a clerk in
respondents accounting department. As the employer of the "thief," respondent supposedly had
control and supervision over its own employee. This gives the Court more reason to allocate part of
the loss to respondent.
3) Ting Ting Pua vs. Sps. Benito Lo Bun Tiong And Caroline Siok Ching Teng, G.R. No. 198660,
October 23, 2013
In overruling the trial court, however, the CA opined that petitioner "failed to establish [the] alleged
indebtedness in writing."45 Consequently, so the CA held, respondents were under no obligation to
prove their defense. Clearly, the CA had discounted the value of the only hard pieces of evidence
extant in the present casethe checks issued by respondent Caroline in 1988 and 1996 that were in
the possession of, and presented in court by, petitioner.
In Pacheco v. Court of Appeals,46 this Court has expressly recognized that a check "constitutes an
evidence of indebtedness"47 and is a veritable "proof of an obligation."48 Hence, it can be used "in
lieu of and for the same purpose as a promissory note."49 In fact, in the seminal case of Lozano v.
Martinez,50 We pointed out that a check functions more than a promissory note since it not only
contains an undertaking to pay an amount of money but is an "order addressed to a bank and
partakes of a representation that the drawer has funds on deposit against which the check is drawn,
sufficient to ensure payment upon its presentation to the bank."51 This Court reiterated this rule in
the relatively recent Lim v. Mindanao Wines and Liquour Galleria stating that "a check, the entries of
which are in writing, could prove a loan transaction."52 This very same principle underpins Section
24 of the Negotiable Instruments Law (NIL):
Section 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon
to have become a party for value.
Consequently, the 17 original checks, completed and delivered to petitioner, are sufficient by
themselves to prove the existence of the loan obligation of the respondents to petitioner. Note that
respondent Caroline had not denied the genuineness of these checks.53 Instead, respondents argue
that they were given to various other persons and petitioner had simply collected all these 17
checks from them in order to damage respondents reputation.54 This account is not only incredible;
it runs counter to human experience, as enshrined in Sec. 16 of the NIL which provides that when an
instrument is no longer in the possession of the person who signed it and it is complete in its terms
"a valid and intentional delivery by him is presumed until the contrary is proved."
The appellate courts justification in giving credit to respondents contention that the respondents
had delivered the 17 checks to persons other than petitioner lies on the supposed failure of
petitioner "to establish for whose accounts [the checks] were deposited and subsequently
dishonored."55 This is clearly contrary to the evidence on record. It seems that the appellate court
overlooked the original copies of the bank return slips offered by petitioner in evidence. These
return slips show that the 1988 checks issued by respondent Caroline were dishonored by the
drawee banks because they were "drawn against insufficient funds."56 Further, a close scrutiny of
these return slips will reveal that the checks were deposited either in petitioners account57 or in the
account of her brother, Ricardo Yuloa fact she had previously testified to explaining that
petitioner indorsed some checks to her brother to pay for a part of the capital she used in her
financing business.58
As for the Asiatrust check issued by respondent Caroline in 1996 to substitute the compounded
value of the 1988 checks, the appellate court likewise sympathized with respondents version of the
story holding that it is buttressed by respondents allegations describing the same defense made in
the two related cases filed against them by petitioners brother-in-law, Vicente
Balboa.1wphi1 These related cases consisted of a criminal case for violation of BP 2259and a civil
case for collection of sum of money60 involving three (3) of the five (5) consecutively numbered
checks she allegedly left with Lilian.61 It should be noted, however, that while respondents were
exculpated from their criminal liability,62 in Sps. Benito Lo Bun Tiong and Caroline Siok Ching Teng
v. Vicente Balboa,63 this Court sustained the factual findings of the appellate court in the civil case
finding respondents civilly liable to pay the amount of the checks.

It bears to note that the Decision of the appellate court categorically debunked the same defense
advanced by respondents in the present case primarily because of Carolines admission to the
contrary. The Decision of the appellate court found without any reversible error by this Court reads,
thus:

The claim of Caroline Siok Ching Teng that the three (3) checks were part of the blank checks she
issued and delivered to Lilian Balboa, wife of plaintiff-appellee, and intended solely for the
operational expenses of their mahjong business is belied by her admission that she issued three (3)
checks (Exhs. "A", "B" "C") because Vicente showed the listing of their account totaling 5,175,250.00
(TSN, November 17, 1997, p. 10).64 x x x

Clearly, respondents defense that Caroline left blank checks with petitioners sister who, it is said, is
now determined to recoup her past losses and bring financial ruin to respondents by falsifying the
same blank checks, had already been thoroughly passed upon and rejected by this Court. It cannot,
therefore, be used to support respondents denial of their liability.

Respondents other defenses are equally unconvincing. They assert that petitioner could not have
accepted a check worth PhP 8.5 million considering that she should have known that respondent
Caroline had issued several checks for PhP 25,000 each in favor of Lilian and all of them had
bounced.65 Needless to state, an act done contrary to law cannot be sustained to defeat a legal
obligation; repeated failure to honor obligations covered by several negotiable instruments cannot
serve to defeat yet another obligation covered by another instrument.

Indeed, it seems that respondent Caroline had displayed a cavalier attitude towards the value, and
the obligation concomitant with the issuance, of a check. As attested to by respondents very own
witness, respondent Caroline has a documented history of issuing insufficiently funded checks for
69 times, at the very least.66 This fact alone bolsters petitioners allegation that the checks delivered
to her by respondent Caroline were similarly not funded.

In Magdiwang Realty Corp. v. Manila Banking Corp., We stressed that the quantum of evidence
required in civil casespreponderance of evidence"is a phrase which, in the last analysis, means
probability to truth. It is evidence which is more convincing to the court as worthier of belief than
that which is offered in opposition thereto."67 Based on the evidence submitted by the parties and
the legal presumptions arising therefrom, petitioners evidence outweighs that of respondents. This
preponderance of evidence in favor of Pua requires that a judgment ordering respondents to pay
their obligation be entered.
4. Complete but Undelivered Instruments
RCBC vs. Hi-Tri Dev. Corp. , et. al, G.R. No. 192413, June 13, 2012
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for
the payment of the Managers Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty,
steps in and claims abandoned, left vacant, or unclaimed property, without there being an
interested person having a legal claim thereto.15 In the case of dormant accounts, the state inquires
into the status, custody, and ownership of the unclaimed balance to determine whether the
inactivity was brought about by the fact of death or absence of or abandonment by the
depositor.16 If after the proceedings the property remains without a lawful owner interested to claim
it, the property shall be reverted to the state "to forestall an open invitation to self-service by the
first comers."17 However, if interested parties have come forward and lain claim to the property, the
courts shall determine whether the credit or deposit should pass to the claimants or be forfeited in
favor of the state.18 We emphasize that escheat is not a proceeding to penalize depositors for failing
to deposit to or withdraw from their accounts. It is a proceeding whereby the state compels the
surrender to it of unclaimed deposit balances when there is substantial ground for a belief that they
have been abandoned, forgotten, or without an owner.19
Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other
similar institutions in filing a sworn statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd
year, all banks, building and loan associations, and trust corporations shall forward to the Treasurer
of the Philippines a statement, under oath, of their respective managing officers, of all credits and
deposits held by them in favor of persons known to be dead, or who have not made further
deposits or withdrawals during the preceding ten years or more, arranged in alphabetical order
according to the names of creditors and depositors, and showing:
(a) The names and last known place of residence or post office addresses of the persons
in whose favor such unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the
same is in money or in security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died, if
known, or the date when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the
bank, building and loan association, or trust corporation concerned for at least sixty days from the
date of filing thereof: Provided, That immediately before filing the above sworn statement, the
bank, building and loan association, and trust corporation shall communicate with the person in
whose favor the unclaimed balance stands at his last known place of residence or post office
address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to
time the existence of unclaimed balances held by banks, building and loan associations, and trust
corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of
unclaimed balances. This notification is meant to inform them that their deposit could be escheated
if left unclaimed. Accordingly, before filing a sworn statement, banks and other similar institutions
are under obligation to communicate with owners of dormant accounts. The purpose of this initial
notice is for a bank to determine whether an inactive account has indeed been unclaimed,
abandoned, forgotten, or left without an owner. If the depositor simply does not wish to touch the
funds in the meantime, but still asserts ownership and dominion over the dormant account, then
the bank is no longer obligated to include the account in its sworn statement.20 It is not the intent of
the law to force depositors into unnecessary litigation and defense of their rights, as the state is
only interested in escheating balances that have been abandoned and left without an owner.
In case the bank complies with the provisions of the law and the unclaimed balances are eventually
escheated to the Republic, the bank "shall not thereafter be liable to any person for the same and
any action which may be brought by any person against in any bank xxx for unclaimed balances so
deposited xxx shall be defended by the Solicitor General without cost to such bank."21 Otherwise,
should it fail to comply with the legally outlined procedure to the prejudice of the depositor, the
bank may not raise the defense provided under Section 5 of Act No. 3936, as amended.
Petitioner asserts22 that the CA committed a reversible error when it required RCBC to send prior
notices to respondents about the forthcoming escheat proceedings involving the funds allocated
for the payment of the Managers Check. It explains that, pursuant to the law, only those "whose
favor such unclaimed balances stand" are entitled to receive notices. Petitioner argues that, since
the funds represented by the Managers Check were deemed transferred to the credit of the payee
upon issuance of the check, the proper party entitled to the notices was the payee Rosmil and
not respondents. Petitioner then contends that, in any event, it is not liable for failing to send a
separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that it
was not under any obligation to record the address of the payee of a Managers Check.
In contrast, respondents Hi-Tri and Bakunawa allege23 that they have a legal interest in the fund
allocated for the payment of the Managers Check. They reason that, since the funds were part of
the Compromise Agreement between respondents and Rosmil in a separate civil case, the approval
and eventual execution of the agreement effectively reverted the fund to the credit of respondents.
Respondents further posit that their ownership of the funds was evidenced by their continued
custody of the Managers Check.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank
(drawee),24 requesting the latter to pay a person named therein (payee) or to the order of the payee
or to the bearer, a named sum of money.25The issuance of the check does not of itself operate as
an assignment of any part of the funds in the bank to the credit of the drawer.26 Here, the bank
becomes liable only after it accepts or certifies the check.27 After the check is accepted for payment,
the bank would then debit the amount to be paid to the holder of the check from the account of
the depositor-drawer.
There are checks of a special type called managers or cashiers checks. These are bills of exchange
drawn by the banks manager or cashier, in the name of the bank, against the bank itself.28 Typically,
a managers or a cashiers check is procured from the bank by allocating a particular amount of
funds to be debited from the depositors account or by directly paying or depositing to the bank
the value of the check to be drawn. Since the bank issues the check in its name, with itself as the
drawee, the check is deemed accepted in advance.29 Ordinarily, the check becomes the primary
obligation of the issuing bank and constitutes its written promise to pay upon demand.30
they were the procurers of the Managers Check. It is undisputed that there was no effective
delivery of the check, rendering the instrument incomplete. In addition, we have already settled that
respondents retained ownership of the funds. As it is obvious from their foregoing actions that they
have not abandoned their claim over the fund, we rule that the allocated deposit, subject of the
Managers Check, should be excluded from the escheat proceedings. We reiterate our
pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances.
We further note that there is nothing in the records that would show that the OSG appealed the
assailed CA judgments. We take this failure to appeal as an indication of disinterest in pursuing the
escheat proceedings in favor of the Republic.

Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatic
transfer of funds to the account of the payee. In case the procurer of the managers or cashiers
check retains custody of the instrument, does not tender it to the intended payee, or fails to make
an effective delivery, we find the following provision on undelivered instruments under the
Negotiable Instruments Law applicable:31

Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto.
As between immediate parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may
be shown to have been conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the instrument is in the hands of a holder in
due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is
proved. (Emphasis supplied.)

Petitioner acknowledges that the Managers Check was procured by respondents, and that the
amount to be paid for the check would be sourced from the deposit account of Hi-Tri.32 When
Rosmil did not accept the Managers Check offered by respondents, the latter retained custody of
the instrument instead of cancelling it. As the Managers Check neither went to the hands of Rosmil
nor was it further negotiated to other persons, the instrument remained undelivered. Petitioner
does not dispute the fact that respondents retained custody of the instrument.33

Since there was no delivery, presentment of the check to the bank for payment did not occur. An
order to debit the account of respondents was never made. In fact, petitioner confirms that the
Managers Check was never negotiated or presented for payment to its Ermita Branch, and that the
allocated fund is still held by the bank.34 As a result, the assigned fund is deemed to remain part of
the account of Hi-Tri, which procured the Managers Check. The doctrine that the deposit
represented by a managers check automatically passes to the payee is inapplicable, because the
instrument although accepted in advance remains undelivered. Hence, respondents should have
been informed that the deposit had been left inactive for more than 10 years, and that it may be
subjected to escheat proceedings if left unclaimed.1wphi1

After a careful review of the RTC records, we find that it is no longer necessary to remand the case
for hearing to determine whether the claim of respondents was valid. There was no contention that
5. Issuance and Delivery value is impaired through the fault of the creditor.6 None of these exceptions were alleged by
respondent Sima Wei.
1) John Dy vs. People of the Phils., G.R. No. 158312 Nov. 14, 2008
X x x x x #Supra (Completion of Blanks) Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the
promissory note by some other cause, petitioner Bank has a right of action against her for the
2) Dev. Bank of Rizal, vs. Sima Wei, et. al., G.R. No. 85419, March 9, 1993 balance due thereon.

The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long
recognized the business custom of using printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer
has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the
mere fact that he has done these does not give rise to any liability on his part, until and unless the
check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is
not only a written evidence of a contract right but is also a species of property. Just as a deed to a
piece of land must be delivered in order to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to evidence its existence as a binding contract.
Section 16 of the Negotiable Instruments Law, which governs checks, provides in part:
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them.
Since petitioner Bank never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus,
anything which the respondents may have done with respect to said checks could not have
prejudiced petitioner Bank. It had no right or interest in the checks which could have been violated
by said respondents. Petitioner Bank has therefore no cause of action against said respondents, in
the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action
against her
co-respondents, if the allegations in the complaint are found to be true.

Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him.3Delivery of an instrument means transfer of possession, actual or constructive, from
one person to another.4 Without the initial delivery of the instrument from the drawer to the payee,
there can be no liability on the instrument. Moreover, such delivery must be intended to give effect
to the instrument.
The allegations of the petitioner in the original complaint show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein
and cannot therefore assert any cause of action, founded on said checks, whether against the
drawer Sima Wei or against the Producers Bank or any of the other respondents.
With respect to the second assignment of error raised by petitioner Bank regarding the applicability
of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss the same in view of
Our finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of
delivery. It therefore has no cause of action against the respondents, in the alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's
complaint is AFFIRMED insofar as the second cause of action is concerned. On the first cause of
action, the case is REMANDED to the trial court for a trial on the merits, consistent with this
decision, in order to determine whether respondent Sima Wei is liable to the Development Bank of
Rizal for any amount under the promissory note allegedly signed by her.
SO ORDERED.

In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory
note, and the alternative defendants, including Sima Wei, on the two checks. On appeal from the
orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action was
not based on collecting the sum of money evidenced by the negotiable instruments stated but
on quasi-delict a claim for damages on the ground of fraudulent acts and evident bad faith of
the alternative respondents. This was clearly an attempt by the petitioner Bank to change not only
the theory of its case but the basis of his cause of action. It is well-settled that a party cannot
change his theory on appeal, as this would in effect deprive the other party of his day in court.5

Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from
liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank
has no merit for, as We have earlier explained, these checks were never delivered to petitioner
Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery
of checks in payment of an obligation does not constitute payment unless they are cashed or their
Signature of Agent
Enrique P. Montinola vs. PNB, et. al., G.R. No. L-2861, Feb 26, 1951
At the beginning of this decision, we stated that as Provincial Treasurer of Misamis Oriental, Ubaldo
D. Laya was ex officio agent of the Philippine National Bank branch in that province. On the face of
the check (Exh. A) we now find the words in parenthesis "Agent, Phil. National Bank" under the
signature of Laya, purportedly showing that he issued the check as agent of the Philippine National
Bank. It this is true, then the bank is not only drawee but also a drawer of the check, and Montinola
evidently is trying to hold the Philippine National Bank liable in that capacity of drawer, because as
drawee alone, inasmuch as the bank has not yet accepted or certified the check, it may yet avoid
payment.
Laya, testifying in court, stated that he issued the check only as Provincial Treasurer, and that the
words in parenthesis "Agent, Phil. National Bank" now appearing under his signature did not appear
on the check when he issued the same. In this he was corroborated by the payee M. V. Ramos who
equally assured the court that when he received the check and then delivered it to Montinola, those
words did not appear under the signature of Ubaldo D. Laya. We again quote with approval the
pertinent portion of the trial court's decision:
The question is reduced to whether or not the words, "Agent, Phil. National Bank" were
added after Laya had issued the check. In a straightforward manner and without
vacillation Laya positively testified that the check Exhibit A was issued by him in his
capacity as Provincial Treasurer of Misamis Oriental and that the words "Agent, Phil.
National Bank" which now appear on the check Exhibit A were not typewritten below his
signature when he signed the said check and delivered the same to Ramos. Laya assured
the court that there could not be any mistake as to this. For, according to Laya, when he
issued check in his capacity as agent of the Misamis Oriental agency of the Philippine
National Bank the said check must be countersigned by the cashier of the said agency
not by the provincial auditor. He also testified that the said check was issued by him in
his capacity as provincial treasurer of Misamis Oriental and that is why the same was
countersigned by Provincial Auditor Flores. The Provincial Auditor at that time had no
connection in any capacity with the Misamis Oriental agency of the Philippine National
Bank. Plaintiff Montinola on the other hand testified that when he received the check
Exhibit A it already bore the words "Agent, Phil. National Bank" below the signature of
Laya and the printed words "Provincial Treasurer".
After considering the testimony of the one and the other, the court finds that the
preponderance of the evidence supports Laya's testimony. In the first place, his testimony
was corroborated by the payee M. V. Ramos. But what renders more probable the
testimony of Laya and Ramos is the fact that the money for which the check was issued
was expressly for the use of the USAFFE of which Ramos was then disbursing officer, so
much so that upon the delivery of the P400,000 in emergency notes and the P100,000
check to Ramos, Laya credited his depository accounts as provincial treasurer with the
corresponding credit entry. In the normal course of events the check could not have
been issued by the bank, and this is borne by the fact that the signature of Laya was
countersigned by the provincial auditor, not the bank cashier. And then, too there is the
circumstance that this check was issued by the provincial treasurer of Lanao to Ramos
who requisitioned the said funds in his capacity as disbursing officer of the USAFFE. The
check, Exhibit A is not what we may term in business parlance, "certified check" or
"cashier's check."
Besides, at the time the check was issued, Laya already knew that Cebu and Manila were
already occupied. He could not have therefore issued the check-as a bank employee-
payable at the central office of the Philippine National Bank.
Upon the foregoing circumstances the court concludes that the words "Agent, Phil.
National Bank' below the signature of Ubaldo D. Laya and the printed words "Provincial
Treasurer" were added in the check after the same was issued by the Provincial Treasurer
of Misamis Oriental.
From all the foregoing, we may safely conclude as we do that the words "Agent, Phil. National
Bank" now appearing on the face of the check (Exh. A) were added or placed in the instrument after
it was issued by Provincial Treasurer Laya to M. V. Ramos. There is no reason known to us why
Provincial Treasurer Laya should issue the check (Exh. A) as agent of the Philippine National Bank.
Said check for P100,000 was issued to complete the payment of the other check for P500,000 issued
by the Provincial Treasurer of Lanao to Ramos, as part of the advance funds for the USAFFE in
Cagayan de Misamis. The balance of P400,000 in cash was paid to Ramos by Laya from the funds,
not of the bank but of the Provincial Treasury. Said USAFFE were being financed not by the Bank
but by the Government and, presumably, one of the reasons for the issuance of the emergency
notes in Mindanao was for this purpose. As already stated, according to Provincial Treasurer Laya,
upon receiving a relatively considerable amount of these emergency notes for his office, he
deposited P500,000 of said currency in the Philippine National Bank branch in Cebu, and that in
issuing the check (Exh. A), he expected to have it cashed at said Cebu bank branch against his
deposit of P500,000.
The logical conclusion, therefore, is that the check was issued by Laya only as Provincial Treasurer
and as an official of the Government which was under obligation to provide the USAFFE with
advance funds, and not by the Philippine National Bank which has no such obligation. The very
Annex C, made part of plaintiff's complaint, and later introduced in evidence for him as Exhibit E
states that Laya issued the check "in his capacity as Provincial Treasurer of Misamis Oriental",
obviously, not as agent of the Bank.
Now, did M. V. Ramos add or place those words below the signature of Laya before transferring the
check to Montinola? Let us bear in mind that Ramos before his induction into the USAFFE had been
working as assistant of Treasurer Laya as ex-officio agent of the Misamis Oriental branch of the
Philippine National Bank. Naturally, Ramos must have known the procedure followed there as to
the issuance of checks, namely, that when a check is issued by the Provincial Treasurer as such, it is
countersigned by the Provincial Auditor as was done on the check (Exhibit A), but that if the
Provincial Treasurer issues a check as agent of the Philippine National Bank, the check is
countersigned not by the Provincial Auditor who has nothing to do with the bank, but by the bank
cashier, which was not done in this case. It is not likely, therefore, that Ramos had made the
insertion of the words "Agent, Phil. National Bank" after he received the check, because he should
have realized that following the practice already described, the check having been issued by Laya as
Provincial Treasurer, and not as agent of the bank, and since the check bears the countersignature
not of the Bank cashier of the Provincial Auditor, the addition of the words "Agent, Phil. National
Bank" could not change the status and responsibility of the bank. It is therefore more logical to
believe and to find that the addition of those words was made after the check had been transferred
by Ramos to Montinola. Moreover, there are other facts and circumstances involved in the case
which support this view. Referring to the mimeographed record on appeal filed by the plaintiff-
appellant, we find that in transcribing and copying the check, particularly the face of it (Exhibit A) in
the complaint, the words "Agent, Phil. National Bank" now appearing on the face of the check
under the signature of the Provincial Treasurer, is missing. Unless the plaintiff in making this copy or
transcription in the complaint committed a serious omission which is decisive as far as the bank is
concerned, the inference is, that at the time the complaint was filed, said phrase did not appear on
the face of the check. That probably was the reason why the bank in its motion to dismiss dated
September 2, 1947, contended that if the check in question had been issued by the provincial
treasurer in his capacity as agent of the Philippine National Bank, said treasurer would have placed
below his signature the words "Agent of the Philippine National Bank". The plaintiff because of the
alleged loss of the check, allegedly attached to the complaint a photostatic copy of said check and
marked it as Annex A. But in transcribing and copying said Annex A in his complaint, the phrase
"Agent, Phil. National Bank" does not appear under the signature of the provincial treasurer. We
tried to verify this discrepancy by going over the original records of the Court of First Instance so as
to compare the copy of Annex A in the complaint, with the original Annex A, the photostatic copy,
but said original Annex A appears to be missing from the record. How it disappeared is not
explained. Of course, now we have in the list of exhibit a photostatic copy marked Annex A and
Exhibit B, but according to the manifestation of counsel for the plaintiff dated October 15, 1948, said
photostatic copy now marked Annex A and Exhibit B was submitted on October 15, 1948, in
compliance with the verbal order of the trial court. It is therefore evident that the Annex A now
available is not the same original Annex A attached to the complaint in 1947.
There is one other circumstance, important and worth nothing. If Annex A also marked Exhibit B is
the photostatic copy of the original check No. 1382 particularly the face thereof (Exhibit A), then
said photostatic copy should be a faithful and accurate reproduction of the check, particularly of
the phrase "Agent, Phil. National Bank" now appearing under the signature of the Provincial
Treasurer on the face of the original check (Exhibit A). But a minute examination of and comparison
between Annex A, the photostatic copy also marked Exhibit B and the face of the check, Exhibit A,
especially with the aid of a handlens, show notable differences and discrepancies. For instance, on
Exhibit A, the letter A of the word "Agent" is toward the right of the tail of the beginning letter of
the signature of Ubaldo D. Laya; this same letter "A" however in Exhibit B is directly under said tail.
The letter "N" of the word "National" on Exhibit A is underneath the space between "Provincial" and
"Treasurer"; but the same letter "N" is directly under the letter "I" of the word "Provincial" in Exhibit
B.
The first letter "a" of the word "National" is under "T" of the word "Treasurer" in Exhibit A; but the
same letter "a" in Exhibit "B" is just below the space between the words "Provincial" and "Treasurer".
The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular border line near the
lower right hand corner of the edge of the check (Exh. A); this same letter "k" however, on Exhibit B
is on the very border line itself or even before said border line.
The closing parenthesis ")" on Exhibit A is a little far from the perpendicular green border line and
appears to be double instead of one single line; this same ")" on Exhibit B appears in a single line
and is relatively nearer to the border line.
There are other notable discrepancies between the check Annex A and the photostatic copy, Exhibit
B, as regards the relative position of the phrase "Agent, Phil. National Bank", with the title Provincial
Treasurer, giving ground to the doubt that Exhibit B is a photostatic copy of the check (Exhibit A).
We then have the following facts. Exhibit A was issued by Laya in his capacity as Provincial Treasurer
of Misamis Oriental as drawer on the Philippine National Bank as drawee. Ramos sold P30,000 of
the check to Enrique P. Montinola for P90,000 Japanese military notes, of which only P45,000 was
paid by Montinola. The writing made by Ramos at the back of the check was an instruction to the
bank to pay P30,000 to Montinola and to deposit the balance to his (Ramos) credit. This writing was
obliterated and in its place we now have the supposed indorsement appearing on the back of the
check (Exh. A-1).
At the time of the transfer of this check (Exh. A) to Montinola about the last days of December,
1944, or the first days of January, 1945, the check which, being a negotiable instrument, was payable
on demand, was long overdue by about 2 years. It may therefore be considered, even then, a
stable check. Of course, Montinola claims that about June, 1944 when Ramos supposedly
approached him for the purpose of negotiating the check, he (Montinola) consulted President
Carmona of the Philippine National Bank who assured him that the check was good and negotiable.
However, President Carmona on the witness stand flatly denied Montinola's claim and assured the
court that the first time that he saw Montinola was after the Philippine National Bank, of which he
was President, reopened, after liberation, around August or September, 1945, and that when shown
the check he told Montinola that it was stale. M. V. Ramos also told the court that it is not true that
he ever went with Montinola to see President Carmona about the check in 1944.
On the basis of the facts above related there are several reasons why the complaint of Montinola
cannot prosper. The insertion of the words "Agent, Phil. National Bank" which converts the bank
from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration
of the instrument without the consent of the parties liable thereon, and so discharges the
instrument. (Section 124 of the Negotiable Instruments Law). The check was not legally negotiated
within the meaning of the Negotiable Instruments Law. Section 32 of the same law provides that
"the indorsement must be an indorsement of the entire instrument. An indorsement which purports
to transfer to the indorsee a part only of the amount payable, . . . (as in this case) does not operate
as a negotiation of the instrument." Montinola may therefore not be regarded as an indorsee. At
most he may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case,
as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of
Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due
course because section 52 of said law defines a holder in due course as a holder who has taken the
instrument under certain conditions, one of which is that he became the holder before it was
overdue. When Montinola received the check, it was long overdue. And, Montinola is not even a
holder because section 191 of the same law defines holder as the payee or indorsee of a bill or note
and Montinola is not a payee. Neither is he an indorsee for as already stated, at most he can be
considered only as assignee. Neither could it be said that he took it in good faith. As already stated,
he has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the
check. In the second place, as was stated by the trial court in its decision, Montinola speculated on
the check and took a chance on its being paid after the war. Montinola must have known that at
the time the check was issued in May, 1942, the money circulating in Mindanao and the Visayas was
only the emergency notes and that the check was intended to be payable in that currency. Also, he
should have known that a check for such a large amount of P100,000 could not have been issued to
Ramos in his private capacity but rather in his capacity as disbursing officer of the USAFFE, and that
at the time that Ramos sold a part of the check to him, Ramos was no longer connected with the
USAFFE but already a civilian who needed the money only for himself and his family.

As already stated, as a mere assignee Montinola is subject to all the defenses available against
assignor Ramos. And, Ramos had he retained the check may not now collect its value because it
had been issued to him as disbursing officer. As observed by the trial court, the check was issued to
M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he
had no right to indorse it personally to plaintiff. It was negotiated in breach of trust, hence he
transferred nothing to the plaintiff.

In view of all the foregoing, finding no reversible error in the decision appealed from, the same is
hereby affirmed with costs.

In the prayer for relief contained at the end of the brief for the Philippine National Bank dated
September 27, 1949, we find this prayer:

It is also respectfully prayed that this Honorable Court refer the check, Exhibit A, to the
City Fiscal's Office for appropriate criminal action against the plaintiff-appellant if the
facts so warrant.

Subsequently, in a petition signed by plaintiff-appellant Enrique P. Montinola dated February 27,

1950, he asked this Court to allow him to withdraw the original check (Exh. A) for him to keep,
expressing his willingness to submit it to the court whenever needed for examination and
verification. The bank on March 2, 1950 opposed the said petition on the ground that inasmuch as
the appellant's cause of action in this case is based on the said check, it is absolutely necessary for
the court to examine the original in order to see the actual alterations supposedly made thereon,
and that should this Court grant the prayer contained in the bank's brief that the check be later
referred to the city fiscal for appropriate action, said check may no longer be available if the
appellant is allowed to withdraw said document. In view of said opposition this Court resolution of
March 6, 1950, denied said petition for withdrawal.

Acting upon the petition contained in the bank's brief already mentioned, once the decision
becomes final, let the Clerk of Court transmit to the city fiscal the check (Exh. A) together with all
pertinent papers and documents in this case, for any action he may deem proper in the premises.
Forgery
1) Samsung Construction Co. Phils, Inc. vs. Far East Bank and Trust Co. et. al. G.R. No. 129015.
Aug. 13, 2004
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give
a discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority.
(Emphasis supplied)
The general rule is to the effect that a forged signature is "wholly inoperative," and payment made
"through or under such signature" is ineffectual or does not discharge the instrument.21 If payment
is made, the drawee cannot charge it to the drawers account. The traditional justification for the
result is that the drawee is in a superior position to detect a forgery because he has the makers
signature and is expected to know and compare it.22 The rule has a healthy cautionary effect on
banks by encouraging care in the comparison of the signatures against those on the signature
cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute
the cost among its customers who use checks makes the drawee an ideal party to spread the risk to
insurance.23
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against which he has the
privilege of drawing checks in the ordinary course of business, the relationship between
the bank and the depositor is that of debtor and creditor. So far as the legal relationship
between the two is concerned, the situation is the same as though the bank had
borrowed money from the depositor, agreeing to repay it on demand, or had bought
goods from the depositor, agreeing to pay for them on demand. The bank owes the
depositor money in the same sense that any debtor owes money to his creditor. Added
to this, in the case of bank and depositor, there is, of course, the banks obligation to pay
checks drawn by the depositor in proper form and presented in due course. When the
bank receives the deposit, it impliedly agrees to pay only upon the depositors order.
When the bank pays a check, on which the depositors signature is a forgery, it has failed
to comply with its contract in this respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged signature may so
closely resemble the genuine as to defy detection by the depositor himself. And yet, if a
bank pays the check, it is paying out its own money and not the depositors.
The forgery may be committed by a trusted employee or confidential agent. The bank
still must bear the loss. Even in a case where the forged check was drawn by the
depositors partner, the loss was placed upon the bank. The case referred to is Robinson
v. Security Bank, Ark., 216 S. W. Rep. 717. In this case, the plaintiff brought suit against the
defendant bank for money which had been deposited to the plaintiffs credit and which
the bank had paid out on checks bearing forgeries of the plaintiffs signature.
xxx
It was held that the bank was liable. It was further held that the fact that the plaintiff
waited eight or nine months after discovering the forgery, before notifying the bank, did
not, as a matter of law, constitute a ratification of the payment, so as to preclude the
plaintiff from holding the bank liable. xxx
This rule of liability can be stated briefly in these words: "A bank is bound to know its
depositors signature." The rule is variously expressed in the many decisions in which the
question has been considered. But they all sum up to the proposition that a bank must
know the signatures of those whose general deposits it carries.24
By no means is the principle rendered obsolete with the advent of modern commercial transactions.
Contemporary texts still affirm this well-entrenched standard. Nickles, in his book Negotiable
Instruments and Other Related Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who can draw
against the customers account by specifying whose signature is necessary on checks that
are chargeable against the customers account. Therefore, a check drawn against the
account of an individual customer that is signed by someone other than the customer,
and without authority from her, is not properly payable and is not chargeable to the
customers account, inasmuch as any "unauthorized signature on an instrument is
ineffective" as the signature of the person whose name is signed.25
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the
party whose signature is forged.26 On the premise that Jongs signature was indeed forged, FEBTC is
liable for the loss since it authorized the discharge of the forged check. Such liability attaches even
if the bank exerts due diligence and care in preventing such faulty discharge. Forgeries often
deceive the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh
rule which compels it to suffer although no one has suffered by its being deceived.27 The forgery
may be so near like the genuine as to defy detection by the depositor himself, and yet the bank is
liable to the depositor if it pays the check.28
Thus, the first matter of inquiry is into whether the check was indeed forged. A document formally
presented is presumed to be genuine until it is proved to be fraudulent. In a forgery trial, this
presumption must be overcome but this can only be done by convincing testimony and effective
illustrations.29
On the other hand, the RTC did adjudge the testimony of the NBI expert as more credible than that
of the PNP, and explained its reason behind the conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the court arrived at
the conclusion that the testimony of the NBI document examiner is more credible
because the testimony of the PNP Crime Laboratory Services document examiner reveals
that there are a lot of differences in the questioned signature as compared to the
standard specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI
expert, the manner of execution of the standard signatures used reveals that it is a free
rapid continuous execution or stroke as shown by the tampering terminal stroke of the
 signatures whereas the questioned signature is a hesitating slow drawn execution stroke.
Clearly, the person who executed the questioned signature was hesitant when the
signature was made.30
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that "apparently, there
[are] differences on that questioned signature and the standard signatures."31 This Court, in
examining the signatures, makes a similar finding. The PNP expert excused the noted "differences"
by asserting that they were mere "variations," which are normal deviations found in writing. 32 Yet
the RTC, which had the opportunity to examine the relevant documents and to personally observe
the expert witness, clearly disbelieved the PNP expert. The Court similarly finds the testimony of the
PNP expert as unconvincing. During the trial, she was confronted several times with apparent
differences between strokes in the questioned signature and the genuine samples. Each time, she
would just blandly assert that these differences were just "variations,"33 as if the mere conjuration of
the word would sufficiently disquiet whatever doubts about the deviations. Such conclusion,
standing alone, would be of little or no value unless supported by sufficiently cogent reasons which
might amount almost to a demonstration.34
The most telling difference between the questioned and genuine signatures examined by the PNP
is in the final upward stroke in the signature, or "the point to the short stroke of the terminal in the
capital letter L," as referred to by the PNP examiner who had marked it in her comparison chart as
"point no. 6." To the plain eye, such upward final stroke consists of a vertical line which forms a
ninety degree (90) angle with the previous stroke. Of the twenty one (21) other genuine samples
examined by the PNP, at least nine (9) ended with an upward stroke.35 However, unlike the
questioned signature, the upward strokes of eight (8) of these signatures are looped, while the
upward stroke of the seventh36 forms a severe forty-five degree (45) with the previous stroke. The
difference is glaring, and indeed, the PNP examiner was confronted with the inconsistency in point
no. 6.
Q: Now, in this questioned document point no. 6, the "s" stroke is directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point 6 is repeated or
the last stroke "s" is pointing directly upwards?
A: There is none in the standard signature, sir.37
Again, the PNP examiner downplayed the uniqueness of the final stroke in the questioned signature
as a mere variation,38 the same excuse she proffered for the other marked differences noted by the
Court and the counsel for petitioner.39
There is no reason to doubt why the RTC gave credence to the testimony of the NBI examiner, and
not the PNP experts. The NBI expert, Rhoda Flores, clearly qualifies as an expert witness. A
document examiner for fifteen years, she had been promoted to the rank of Senior Document
Examiner with the NBI, and had held that rank for twelve years prior to her testimony. She had
placed among the top five examinees in the Competitive Seminar in Question Document
Examination, conducted by the NBI Academy, which qualified her as a document examiner.40She
had trained with the Royal Hongkong Police Laboratory and is a member of the International
Association for Identification.41 As of the time she testified, she had examined more than fifty to
fifty-five thousand questioned documents, on an average of fifteen to twenty documents a day.42 In
comparison, PNP document examiner Perez admitted to having examined only around five
hundred documents as of her testimony.43
In analyzing the signatures, NBI Examiner Flores utilized the scientific comparative examination
method consisting of analysis, recognition, comparison and evaluation of the writing habits with the
use of instruments such as a magnifying lense, a stereoscopic microscope, and varied lighting
substances. She also prepared enlarged photographs of the signatures in order to facilitate the
necessary comparisons.44 She compared the questioned signature as against ten (10) other sample
signatures of Jong. Five of these signatures were executed on checks previously issued by Jong,
while the other five contained in business letters Jong had signed.45 The NBI found that there were
significant differences in the handwriting characteristics existing between the questioned and the
sample signatures, as to manner of execution, link/connecting strokes, proportion characteristics,
and other identifying details.46
The RTC was sufficiently convinced by the NBI examiners testimony, and explained her reasons in
its Decisions. While the Court of Appeals disagreed and upheld the findings of the PNP, it failed to
convincingly demonstrate why such findings were more credible than those of the NBI expert. As a
throwaway, the assailed Decision noted that the PNP, not the NBI, had the opportunity to examine
the specimen signature card signed by Jong, which was relied upon by the employees of FEBTC in
authenticating Jongs signature. The distinction is irrelevant in establishing forgery. Forgery can be
established comparing the contested signatures as against those of any sample signature duly
established as that of the persons whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the questioned
signature against the bank signature cards. The crucial fact in question is whether or not the check
was forged, not whether the bank could have detected the forgery. The latter issue becomes relevant
only if there is need to weigh the comparative negligence between the bank and the party whose
signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jongs testimony that the
signature on the check was not his.47 The assertion may seem self-serving at first blush, yet it cannot
be ignored that Jong was in the best position to know whether or not the signature on the check
was his. While his claim should not be taken at face value, any averments he would have on the
matter, if adjudged as truthful, deserve primacy in consideration. Jongs testimony is supported by
the findings of the NBI examiner. They are also backed by factual circumstances that support the
conclusion that the assailed check was indeed forged. Judicial notice can be taken that is highly
unusual in practice for a business establishment to draw a check for close to a million pesos and
make it payable to cash or bearer, and not to order. Jong immediately reported the forgery upon
its discovery. He filed the appropriate criminal charges against Sempio, the putative forger. 48
Now for determination is whether Samsung Construction was precluded from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law. The Court of Appeals
concluded that Samsung Construction was negligent, and invoked the doctrines that "where a loss
must be borne by one of two innocent person, can be traced to the neglect or fault of either, it is
reasonable that it would be borne by him, even if innocent of any intentional fraud, through whose
means it has succeeded49 or who put into the power of the third person to perpetuate the
wrong."50 Applying these rules, the Court of Appeals determined that it was the negligence of
Samsung Construction that allowed the encashment of the forged check.
In the case at bar, the forgery appears to have been made possible through the acts of
one Jose Sempio III, an assistant accountant employed by the plaintiff Samsung
[Construction] Co. Philippines, Inc. who supposedly stole the blank check and who
presumably is responsible for its encashment through a forged signature of Jong Kyu
Lee. Sempio was assistant to the Korean accountant who was in possession of the blank
checks and who through negligence, enabled Sempio to have access to the same. Had
the Korean accountant been more careful and prudent in keeping the blank checks
Sempio would not have had the chance to steal a page thereof and to effect the forgery.
Besides, Sempio was an employee who appears to have had dealings with the defendant
Bank in behalf of the plaintiff corporation and on the date the check was encashed, he
was there to certify that it was a genuine check issued to purchase equipment for the
company.51
We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the
defense of forgery if it is guilty of negligence.52 Yet, we are unable to conclude that Samsung
Construction was guilty of negligence in this case. The appellate court failed to explain precisely
how the Korean accountant was negligent or how more care and prudence on his part would have
prevented the forgery. We cannot sustain this "tar and feathering" resorted to without any basis.
The bare fact that the forgery was committed by an employee of the party whose signature was
forged cannot necessarily imply that such partys negligence was the cause for the forgery.
Employers do not possess the preternatural gift of cognition as to the evil that may lurk within the
hearts and minds of their employees. The Courts pronouncement in PCI Bank v. Court of
Appeals53 applies in this case, to wit:
[T]he mere fact that the forgery was committed by a drawer-payors confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the bank, does not entitle the bank to
shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.54
Admittedly, the record does not clearly establish what measures Samsung Construction employed
to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept the checks inside a
"safety box,"55 and no contrary version was presented by FEBTC. However, such testimony cannot
prove that the checks were indeed kept in a safety box, as Jongs testimony on that point is hearsay,
since Kyu, and not Jong, would have the personal knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was no negligence on
Samsung Constructions part. The presumption remains that every person takes ordinary care of his
concerns,56 and that the ordinary course of business has been followed.57 Negligence is not
presumed, but must be proven by him who alleges it.58 While the complaint was lodged at the
instance of Samsung Construction, the matter it had to prove was the claim it had alleged -
whether the check was forged. It cannot be required as well to prove that it was not negligent,
because the legal presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung
Construction was negligent. While the payee, as in this case, may not have the personal knowledge
as to the standard procedures observed by the drawer, it well has the means of disputing the
presumption of regularity. Proving a negative fact may be "a difficult office,"59 but necessarily so, as
it seeks to overcome a presumption in law. FEBTC was unable to dispute the presumption of
ordinary care exercised by Samsung Construction, hence we cannot agree with the Court of
Appeals finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to establish that there
was no negligence on the part of the bank in its acceptance and payment of the forged check.
However, the degree of diligence exercised by the bank would be irrelevant if the drawer is not
precluded from setting up the defense of forgery under Section 23 by his own negligence. The rule
of equity enunciated in PNB v. National City Bank of New York, 60 as relied upon by the Court of
Appeals, deserves careful examination.
The point in issue has sometimes been said to be that of negligence. The drawee who
has paid upon the forged signature is held to bear the loss, because he has been negligent
in failing to recognize that the handwriting is not that of his customer. But it follows
obviously that if the payee, holder, or presenter of the forged paper has himself been in
default, if he has himself been guilty of a negligence prior to that of the banker, or if by
any act of his own he has at all contributed to induce the banker's negligence, then he
may lose his right to cast the loss upon the banker.61 (Emphasis supplied)
Quite palpably, the general rule remains that the drawee who has paid upon the forged signature
bears the loss. The exception to this rule arises only when negligence can be traced on the part of
the drawer whose signature was forged, and the need arises to weigh the comparative negligence
between the drawer and the drawee to determine who should bear the burden of loss. The Court
finds no basis to conclude that Samsung Construction was negligent in the safekeeping of its
checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying
around does not constitute such negligence as will free the bank from liability to him, where a clerk
of the depositor or other persons, taking advantage of the opportunity, abstract some of the check
blanks, forges the depositors signature and collect on the checks from the bank.62 And for another,
in point of fact Samsung Construction was not negligent at all since it reported the forgery almost
immediately upon discovery.63
It is also worth noting that the forged signatures in PNB v. National City Bank of New York were not
of the drawer, but of indorsers. The same circumstance attends PNB v. Court of Appeals,64 which
was also cited by the Court of Appeals. It is accepted that a forged signature of the drawer differs in
treatment than a forged signature of the indorser.
The justification for the distinction between forgery of the signature of the drawer and
forgery of an indorsement is that the drawee is in a position to verify the drawers
signature by comparison with one in his hands, but has ordinarily no opportunity to
verify an indorsement.65
Thus, a drawee bank is generally liable to its depositor in paying a check which bears
either a forgery of the drawers signature or a forged indorsement. But the bank may, as
a general rule, recover back the money which it has paid on a check bearing a forged
 indorsement, whereas it has not this right to the same extent with reference to a check witness any other employee of their Bel-Air branch, including those who supposedly had transacted
bearing a forgery of the drawers signature.66 with Sempio before.

The general rule imputing liability on the drawee who paid out on the forgery holds in this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on the forged check,
we might as well comment on the banks performance of its duty. It might be so that the bank
complied with its own internal rules prior to paying out on the questionable check. Yet, there are
several troubling circumstances that lead us to believe that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos is unusual enough
to require a higher degree of caution on the part of the bank. Indeed, FEBTC confirms this through
its own internal procedures. Checks below twenty-five thousand pesos require only the approval of
the teller; those between twenty-five thousand to one hundred thousand pesos necessitate the
approval of one bank officer; and should the amount exceed one hundred thousand pesos, the
concurrence of two bank officers is required.67
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of
Samsung Construction, the irregular circumstances attending the presentment of the forged check
should have put the bank on the highest degree of alert. The Court recently emphasized that the
highest degree of care and diligence is required of banks.
Banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them. They
have the obligation to treat their clients account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family.76
Given the circumstances, extraordinary diligence dictates that FEBTC should have ascertained from
Jong personally that the signature in the questionable check was his.

In this case, not only did the amount in the check nearly total one million pesos, it was also payable
to cash. That latter circumstance should have aroused the suspicion of the bank, as it is not ordinary
business practice for a check for such large amount to be made payable to cash or to bearer,
instead of to the order of a specified person.68Moreover, the check was presented for payment by
one Roberto Gonzaga, who was not designated as the payee of the check, and who did not carry
with him any written proof that he was authorized by Samsung Construction to encash the check.
Gonzaga, a stranger to FEBTC, was not even an employee of Samsung Construction. 69 These
circumstances are already suspicious if taken independently, much more so if they are evaluated in
concurrence. Given the shadiness attending Gonzagas presentment of the check, it was not
sufficient for FEBTC to have merely complied with its internal procedures, but mandatory that all
earnest efforts be undertaken to ensure the validity of the check, and of the authority of Gonzaga
to collect payment therefor.
Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may
still recover from the bank as long as he or she is not precluded from setting up the defense of
forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to
enforce the payment of a check can arise out of a forged signature. Since the drawer, Samsung
Construction, is not precluded by negligence from setting up the forgery, the general rule should
apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds
and cannot charge the amount so paid to the account of the depositor.77 A bank is liable,
irrespective of its good faith, in paying a forged check.78
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28 November
1996 is REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, dated 25 April
1994 is REINSTATED. Costs against respondent.

According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but failed, to contact SO ORDERED.
Jong over the phone to verify the check.70 She added that calling the issuer or drawer of the check
to verify the same was not part of the standard procedure of the bank, but an "extra effort."71 Even
assuming that such personal verification is tantamount to extraordinary diligence, it cannot be
denied that FEBTC still paid out the check despite the absence of any proof of verification from the
drawer. Instead, the bank seems to have relied heavily on the say-so of Sempio, who was present at
the bank at the time the check was presented.

FEBTC alleges that Sempio was well-known to the bank officers, as he had regularly transacted with
the bank in behalf of Samsung Construction. It was even claimed that everytime FEBTC would
contact Jong about problems with his account, Jong would hand the phone over to
Sempio.72 However, the only proof of such allegations is the testimony of Gemma Velez, who also
testified that she did not know Sempio personally,73 and had met Sempio for the first time only on
the day the check was encashed.74 In fact, Velez had to inquire with the other officers of the bank as
to whether Sempio was actually known to the employees of the bank.75 Obviously, Velez had no
personal knowledge as to the past relationship between FEBTC and Sempio, and any averments of
her to that effect should be deemed hearsay evidence. Interestingly, FEBTC did not present as a
 2) Associated Bank vs. Hon. Court of Appeals, G.R. No. 107382. Jan. 31, 1996
Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the
drawee bank or the collecting bank?
Checks having forged indorsements should be differentiated from forged checks or checks bearing
the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made
without authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such
signature unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.
A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one
can gain title to the instrument through it. A person whose signature to an instrument was forged
was never a party and never consented to the contract which allegedly gave rise to such
instrument. 18 Section 23 does not avoid the instrument but only the forged signature. 19 Thus, a
forged indorsement does not operate as the payee's indorsement.
The exception to the general rule in Section 23 is where "a party against whom it is sought to
enforce a right is precluded from setting up the forgery or want of authority." Parties who warrant
or admit the genuineness of the signature in question and those who, by their acts, silence or
negligence are estopped from setting up the defense of forgery, are precluded from using this
defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the
genuineness of the signatures on the instrument. 20
In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the
instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged
can raise the defense of forgery against a holder in due course. 21
The checks involved in this case are order instruments, hence, the following discussion is made with
reference to the effects of a forged indorsement on an instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such as the checks in this case,
the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same
instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the
real defense of forgery against all parties subsequent thereto. 22
An indorser of an order instrument warrants "that the instrument is genuine and in all respects what
it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and
that the instrument is at the time of his indorsement valid and subsisting." 23 He cannot interpose
the defense that signatures prior to him are forged.
A collecting bank where a check is deposited and which indorses the check upon presentment with
the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the
banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set
up the defense of forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the
check to the order of the payee. The drawer's instructions are reflected on the face and by the
terms of the check. Payment under a forged indorsement is not to the drawer's order. When the
drawee bank pays a person other than the payee, it does not comply with the terms of the check
and violates its duty to charge its customer's (the drawer) account only for properly payable items.
Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no
right to reimbursement from the drawer. 24 The general rule then is that the drawee bank may not
debit the drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss
must perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care
that substantially contributed to the making of the forged signature, the drawer is precluded from
asserting the forgery.
If at the same time the drawee bank was also negligent to the point of substantially contributing to
the loss, then such loss from the forgery can be apportioned between the negligent drawer and the
negligent bank. 26
In cases involving a forged check, where the drawer's signature is forged, the drawer can recover
from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to
recredit the amount of the check to the account of the drawer. The liability chain ends with the
drawee bank whose responsibility it is to know the drawer's signature since the latter is its
customer. 27
In cases involving checks with forged indorsements, such as the present petition, the chain of
liability does not end with the drawee bank. The drawee bank may not debit the account of the
drawer but may generally pass liability back through the collection chain to the party who took
from the forger and, of course, to the forger himself, if available. 28 In other words, the drawee bank
canseek reimbursement or a return of the amount it paid from the presentor bank or
person. 29 Theoretically, the latter can demand reimbursement from the person who indorsed the
check to it and so on. The loss falls on the party who took the check from the forger, or on the
forger himself.
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank
(PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements.
If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable,
without prejudice to the latter proceeding against the forger.
Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the
drawee bank. The former must necessarily return the money paid by the latter because it was paid
wrongfully. 30
More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements, including the
forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at
the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a
breach of this warranty and will be accountable to the drawee bank. This liability scheme operates
without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not
negligent, it would still be liable to the drawee bank because of its indorsement.
The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior endorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements." 31
The drawee bank is not similarly situated as the collecting bank because the former makes no
warranty as to the genuineness. of any indorsement. 32 The drawee bank's duty is but to verify the
genuineness of the drawer's signature and not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the
check. The bank knows him, his address and history because he is a client. It has taken a risk on his
deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the
indorsement.
Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement
from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of
the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery,
thereby depriving said presentor of the right to recover from the forger, the former is deemed
negligent and can no longer recover from the presentor. 33
Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account
of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the
Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss,
then the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province
of Tarlac were negligent, the loss should be properly apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank
which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto
Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of
the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to
bear the loss.
After careful examination of the records, the Court finds that the Province of Tarlac was equally
negligent and should, therefore, share the burden of loss from the checks bearing a forged
indorsement.
The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the
loss tantamount to negligence. Hence, the Province of Tarlac should be liable for part of the total
amount paid on the questioned checks.
The drawee bank PNB also breached its duty to pay only according to the terms of the check.
Hence, it cannot escape liability and should also bear part of the loss.
As earlier stated, PNB can recover from the collecting bank.
In the case of Associated Bank v. CA, 35 six crossed checks with forged indorsements were deposited
in the forger's account with the collecting bank and were later paid by four different drawee banks.
The Court found the collecting bank (Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed checks, of which he
was not the payee, and to deposit the proceeds of the checks to his own account. The
Bank was by reason of the nature of the checks put upon notice that they were issued for
deposit only to the private respondent's account. . . .
The situation in the case at bench is analogous to the above case, for it was not the payee who
deposited the checks with the collecting bank. Here, the checks were all payable to Concepcion
Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings
account.
Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of
endorsements guaranteed) is merely a requirement forced upon it by clearing house rules, it cannot
but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank
must fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated
to it. It is within the bank's discretion to receive a check for no banking institution would consciously
or deliberately accept a check bearing a forged indorsement. When a check is deposited with the
collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable
for checks deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the
opportunity to go after the forger, signifies negligence on the part of the drawee bank (PNB) and
will preclude it from claiming reimbursement.
It is here that Associated Bank's assignment of error concerning C.B. Circular No. 580 and Section
23 of the Philippine Clearing House Corporation Rules comes to fore. Under Section 4(c) of CB
Circular No. 580, items bearing a forged endorsement shall be returned within twenty-Sour (24)
hours after discovery of the forgery but in no event beyond the period fixed or provided by law for
filing of a legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement
that items bearing a forged endorsement should be returned within twenty-four hours. Associated
Bank now argues that the aforementioned Central Bank Circular is applicable. Since PNB did not
return the questioned checks within twenty-four hours, but several days later, Associated Bank
alleges that PNB should be considered negligent and not entitled to reimbursement of the amount
it paid on the checks.
The rule mandates that the checks be returned within twenty-four hours after discovery of the
forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the
rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed
against the forger. If prompt notice is not given, the collecting bank maybe prejudiced and lose the
opportunity to go after its depositor.

The Court finds that even if PNB did not return the questioned checks to Associated Bank within
twenty-four hours, as mandated by the rule, PNB did not commit negligent delay. Under the
circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced
in going after Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB
necessarily had to inspect the checks and conduct its own investigation. Thereafter, it requested the
Provincial Treasurer's office on March 31, 1981 to return the checks for verification. The Province of
Tarlac returned the checks only on April 22, 1981. Two days later, Associated Bank received the
checks from PNB. 36

3) Traders Royal Bank vs. Radio Philippines Network, Inc., et. al., G.R. No. 138510, Oct. 10,
2002
A bank is engaged in a business impressed with public interest and it is its duty to protect its many
clients and depositors who transact business with it. It is under the obligation to treat the accounts
of the depositors and clients with meticulous care, whether such accounts consist only of a few
hundreds or millions of pesos.9
Petitioner argues that respondent SBTC, as the collecting bank and indorser, should be held
responsible instead for the amount of the checks.
The Court of Appeals addressed exactly the same issue and made the following findings and
conclusions:
As to the alleged liability of appellant SBTC, a close examination of the records constrains us to
deviate from the lower courts finding that SBTC, as a collecting bank, should similarly bear the loss.
"A collecting bank where a check is deposited and which indorses the check upon presentment with
the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the
banks client is forged, the collecting bank is bound by his warranties as an indorser and cannot set
up the defense of forgery as against the drawee bank."
To hold appellant SBTC liable, it is necessary to determine whether it is a party to the disputed
transactions.
Section 3 of the Negotiable Instruments Law reads:
"SECTION 63. When person deemed indorser. - A person placing his signature upon an instrument
otherwise than as maker, drawer, or acceptor, is deemed to be an indorser unless he clearly
indicates by appropriate words his intention to be bound in some other capacity."
Upon the other hand, the Philippine Clearing House Corporation (PCHC) rules provide:
"Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC shall bear the guarantee affixed
thereto by the Presenting Bank/Branch which shall read as follows:
"Cleared thru the Philippine Clearing House Corporation. All prior endorsements and/or lack of
endorsement guaranteed. NAME OF BANK/BRANCH BRSTN (Date of clearing)."
Here, not one of the disputed checks bears the requisite endorsement of appellant SBTC. What
appears to be a guarantee stamped at the back of the checks is that of the Philippine National
Bank, Buendia Branch, thereby indicating that it was the latter Bank which received the same.
It was likewise established during the trial that whenever appellant SBTC receives a check for
deposit, its practice is to stamp on its face the words, "non-negotiable". Lana Echevarrias testimony
is relevant:
"ATTY. ROMANO: Could you tell us briefly the procedure you follow in receiving checks?
"A: First of all, I verify the check itself, the place, the date, the amount in words and everything. And
then, if all these things are in order and verified in the data sheet I stamp my non-negotiable stamp
at the face of the check."
Unfortunately, the words "non-negotiable" do not appear on the face of either of the three (3)
disputed checks.
Moreover, the aggregate amount of the checks is not reflected in the clearing documents of
appellant SBTC. Section 19 of the Rules of the PCHC states:
"Section 19 Regular Item Procedure:
Each clearing participant, through its authorized representatives, shall deliver to the PCHC fully
qualified MICR checks grouped in 200 or less items to a batch and supported by an add-list, a
batch control slip, and a delivery statement.
The foregoing circumstances taken altogether create a serious doubt on whether the disputed
checks passed through the hands of appellant SBTC."10
We subscribe to the foregoing findings and conclusions of the Court of Appeals.
A collecting bank which indorses a check bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor. However, it is doubtful if the subject checks were ever
presented to and accepted by SBTC so as to hold it liable as a collecting bank, as held by the Court
of Appeals.
Since TRB did not pay the rightful holder or other person or entity entitled to receive payment, it
has no right to reimbursement. Petitioner TRB was remiss in its duty and obligation, and must
therefore suffer the consequences of its own negligence and disregard of established banking rules
and procedures.
 4) BPI vs. Casa Montessori Internationale, et. al., G.R. No. 149454. May 28, 2004
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
"Section 23. Forged signature; effect of. -- When a signature is forged or made without
the authority of the person whose signature it purports to be, it is wholly inoperative, and
no right x x x to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of authority."12
Under this provision, a forged signature is a real13 or absolute defense,14 and a person whose
signature on a negotiable instrument is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly gave rise to it.15
The counterfeiting of any writing, consisting in the signing of anothers name with intent to defraud,
is forgery.16
In the present case, we hold that there was forgery of the drawers signature on the check.
First, both the CA17 and the RTC18 found that Respondent Yabut himself had voluntarily admitted,
through an Affidavit, that he had forged the drawers signature and encashed the checks.19 He
never refuted these findings.20That he had been coerced into admission was not corroborated by
any evidence on record.21
Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its
examination of the said checks,22 had concluded that the handwritings thereon -- compared to the
standard signature of the drawer -- were not hers.23 This conclusion was the same as that in the
Report24 that the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the
latters request.
Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the CA, since
these are supported by substantial evidence on record.25
Clear, Positive and Convincing Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing.
Forgery "cannot be presumed."47 It must be established by clear, positive and convincing
evidence.48 Under the best evidence rule as applied to documentary evidence like the checks in
question, no secondary or substitutionary evidence may inceptively be introduced, as the original
writing itself must be produced in court.49 But when, without bad faith on the part of the offeror,
the original checks have already been destroyed or cannot be produced in court, secondary
evidence may be produced.50 Without bad faith on its part, CASA proved the loss or destruction of
the original checks through the Affidavit of the one person who knew of that fact51 -- Yabut. He
clearly admitted to discarding the paid checks to cover up his misdeed. 52 In such a situation,
secondary evidence like microfilm copies may be introduced in court.
The drawers signatures on the microfilm copies were compared with the standard signature. PNP
Document Examiner II Josefina de la Cruz testified on cross-examination that two different persons
had written them.53Although no conclusive report could be issued in the absence of the original
checks,54 she affirmed that her findings were 90 percent conclusive.55 According to her, even if the
microfilm copies were the only basis of comparison, the differences were evident.56 Besides, the RTC
explained that although the Report was inconclusive, no conclusive report could have been given
by the PNP, anyway, in the absence of the original checks.57 This explanation is valid; otherwise, no
such report can ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only when the contents
of a document -- such as the drawers signature on a check -- is the subject of inquiry.58 As to
whether the document has been actually executed, this rule does not apply; and testimonial as well
as any other secondary evidence is admissible.59Carina Lebron herself, the drawers authorized
signatory, testified many times that she had never signed those checks. Her testimonial evidence is
admissible; the checks have not been actually executed. The genuineness of her handwriting is
proved, not only through the courts comparison of the questioned handwritings and admittedly
genuine specimens thereof,60 but above all by her.
The failure of CASA to produce the original checks neither gives rise to the presumption of
suppression of evidence61 nor creates an unfavorable inference against it.62 Such failure merely
authorizes the introduction of secondary evidence63 in the form of microfilm copies. Of no
consequence is the fact that CASA did not present the signature card containing the signatures with
which those on the checks were compared.64 Specimens of standard signatures are not limited to
such a card. Considering that it was not produced in evidence, other documents that bear the
drawers authentic signature may be resorted to.65 Besides, that card was in the possession of BPI --
the adverse party.
We have held that without the original document containing the allegedly forged signature, one
cannot make a definitive comparison that would establish forgery;66 and that a comparison based
on a mere reproduction of the document under controversy cannot produce reliable results. 67 We
have also said, however, that a judge cannot merely rely on a handwriting experts testimony,68 but
should also exercise independent judgment in evaluating the authenticity of a signature under
scrutiny.69 In the present case, both the RTC and the CA conducted independent examinations of
the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit
secondary evidence; they also appositely considered testimonial and other documentary evidence
in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has
been met.70The result of examining a questioned handwriting, even with the aid of experts and
scientific instruments, may be inconclusive;71 but it is a non sequitur to say that such result is not
clear, positive and convincing. The preponderance of evidence required in this case has been
satisfied.72

Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI -- the drawee -- erred in making
payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the drawer
whose authorized signatures do not appear on the negotiable instruments -- cannot be held liable
thereon. Neither is the latter precluded from setting up forgery as a real defense.
Clear Negligence in Allowing Payment Under a Forged Signature
We have repeatedly emphasized that, since the banking business is impressed with public interest,
of paramount importance thereto is the trust and confidence of the public in general.
Consequently, the highest degree of diligence73 is expected,74 and high standards of integrity and
performance are even required, of it.75 By the nature of its functions, a bank is "under obligation to
treat the accounts of its depositors with meticulous care,76 always having in mind the fiduciary
nature of their relationship."77
the performance of that obligation, it is bound by its internal banking rules and regulations that
form part of the contract it enters into with its depositors.109
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its
branches without privity;110 that is, without the proper verification of his corresponding identification
papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked
differences in the signatures on the checks and those on the signature card. Third, despite the
examination procedures it conducted, the Central Verification Unit111of the bank even passed off
these evidently different signatures as genuine. Without exercising the required prudence on its
part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately
contributed to the fraud and should be held primarily liable112 for the "negligence of its officers or
agents when acting within the course and scope of their employment."113 It must bear the loss.
CASA Not Negligent in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception114 to
the general rule that a forged signature is wholly inoperative.115 Contrary to BPIs claim, however, we
do not find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from
setting up forgery as a real defense.

BPI contends that it has a signature verification procedure, in which checks are honored only when
the signatures therein are verified to be the same with or similar to the specimen signatures on the
signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence
consisted in the omission of that degree of diligence required78 of a bank. It cannot now feign
ignorance, for very early on we have already ruled that a bank is "bound to know the signatures of
its customers; and if it pays a forged check, it must be considered as making the payment out of its
own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged."79 In fact, BPI was the same bank involved when we issued this ruling seventy
years ago.

Loss Borne by Proximate Source of Negligence

For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -- the drawee bank --
becomes liable to its depositor-drawer. Since the encashing bank is one of its branches,101 BPI can
easily go after it and hold it liable for reimbursement.102 It "may not debit the drawers
account103 and is not entitled to indemnification from the drawer."104 In both law and equity, when
one of two innocent persons "must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss or who put it into the
power of the third person to perpetrate the wrong."105

Proximate cause is determined by the facts of the case.106 "It is that cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred."107

Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-
depositors on checks being encashed, BPI is "expected to use reasonable business prudence."108 In
 5) MWSS vs. CA and PNB, G.R. No. L-62943, July 14, 1986
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It
must be established by clear, positive, and convincing evidence. This was not done in the present
case.
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59)
and Great Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the
petitioner are inapplicable in this case because the forgeries in those cases were either clearly
established or admitted while in the instant case, the allegations of forgery were not clearly
established during trial.
X x x [1907]. See also Leather Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657
Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law which provides that:
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or
made without authority of the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party thereto
can be acquired through or under such signature unless the party against
whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority.
because it was guilty of negligence not only before the questioned checks were negotiated but
even after the same had already been negotiated. (See Republic v. Equitable Banking Corporation,
10 SCRA 8)
x x x D. Consideration
It is accepted banking procedure for the depository bank to furnish its depositors bank statements
and debt and credit memos through the mail. The records show that the petitioner requested the
respondent drawee bank to discontinue the practice of mailing the bank statements, but instead to
deliver the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza
however, he was unreasonably delayed in taking prompt deliveries of the said bank statements and
credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements
with the petitioner's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank
statements and reconciling them with the petitioner's records, the fraudulent encashments of the
first checks should have been discovered, and further frauds prevented. This negligence was,
therefore, the proximate cause of the failure to discover the fraud. Thus,
When a person opens a checking account with a bank, he is given blank
checks which he may fill out and use whenever he wishes. Each time he issues
a check, he should also fill out the check stub to which the check is usually
attached. This stub, if properly kept, will contain the number of the check, the
date of its issue, the name of the payee and the amount thereof. The drawer
would therefore have a complete record of the checks he issues. It is the
custom of banks to send to its depositors a monthly statement of the status of
their accounts, together with all the cancelled checks which have been cashed
by their respective holders. If the depositor has filled out his check stubs
properly, a comparison between them and the cancelled checks will reveal any
forged check not taken from his checkbook. It is the duty of a depositor to
carefully examine the bank's statement, his cancelled checks, his check stubs
and other pertinent records within a reasonable time, and to report any errors
without unreasonable delay. If his negligence should cause the bank to honor
a forged check or prevent it from recovering the amount it may have already
paid on such check, he cannot later complain should the bank refuse to
recredit his account with the amount of such check. (First Nat. Bank of
Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE 152, 7 LRA, NS 744
[1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of Biloxi, 166 Miss. 162,
146 So. 116 [1933]). Campos and Campos, Notes and Selected Cases on
Negotiable Instruments Law, 1971, pp. 267-268).
This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted
by the National Bureau of Investigation in its report dated November 2, 1970:
58. One factor which facilitate this fraud was the delay in the reconciliation of
bank (PNB) statements with the NAWASA bank accounts. x x x. Had the
NAWASA representative come to the PNB early for the statements and had
the bank been advised promptly of the reported bogus check, the negotiation
of practically all of the remaining checks on May, 1969, totalling P2,224,736.00
could have been prevented.
1) Engr. Jose E. Cayanan North Star Intl Travel, Inc., G.R. No. 172954 Oct. 5, 2011
We have held that upon issuance of a check, in the absence of evidence to the contrary, it is
presumed that the same was issued for valuable consideration which may consist either in some
right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by
the other side.14 Under the Negotiable Instruments Law, it is presumed that every party to an
instrument acquires the same for a consideration or for value.15 As petitioner alleged that there was
no consideration for the issuance of the subject checks, it devolved upon him to present convincing
evidence to overthrow the presumption and prove that the checks were in fact issued without
valuable consideration.16 Sadly, however, petitioner has not presented any credible evidence to
rebut the presumption, as well as North Stars assertion, that the checks were issued as payment for
the US$85,000 petitioner owed.
 2) Leodegario Bayani vs. People of the Phils., G.R. No. 154947, Aug. 11, 2004
The evidence on record shows that Evangelista rediscounted the check and gave P55,000.00 to
Rubia after the latter endorsed the same. As such, Evangelista is a holder of the check in due
course.28 Under Section 28 of the Negotiable Instruments Law (NIL), absence or failure of
consideration is a matter of defense only as against any person not a holder in due course, thus:
SECTION 28. Effect of want of consideration. Absence or failure of consideration is a
matter of defense as against any person not a holder in due course; and partial failure of
consideration is a defense pro tanto, whether the failure is an ascertained and liquidated
amount or otherwise.
Moreover, Section 24 of the NIL provides the presumption of consideration, viz:
SECTION 24. Presumption of consideration. Every negotiable instrument is deemed
prima facie to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.
Such presumption cannot be overcome by the petitioners bare denial of receipt of the amount
of P55,000.00 from Rubia.
X x x
Equally futile is the petitioners contention that the prosecution failed to prove the crime charged.
For the accused to be guilty of violation of Section 1 of B.P. Blg. 22, the prosecution is mandated to
prove the essential elements thereof, to wit:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or for value.
3. That the person who makes or draws and issues the check knows at the time of issue
that he does not have sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment.
4. That the check is subsequently dishonored by the drawee bank for insufficiency of
funds or credit, or would have been dishonored for the same reason had not the
drawer, without any valid reason, ordered the bank to stop payment.31
Carmela Brobio Mangahas vs. Eufrocina A. Brobio, G.R. No. 183852, Oct. 20, 2010
Contrary to the CAs findings, the situation did not amount to intimidation that vitiated
consent.1awphil There is intimidation when one of the contracting parties is compelled to give his
consent by a reasonable and well-grounded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants, or ascendants. 19 Certainly, the
payment of penalties for delayed payment of taxes would not qualify as a "reasonable and well-
grounded fear of an imminent and grave evil."
We join the RTC in holding that courts will not set aside contracts merely because solicitation,
importunity, argument, persuasion, or appeal to affection was used to obtain the consent of the
other party. Influence obtained by persuasion or argument or by appeal to affection is not
prohibited either in law or morals and is not obnoxious even in courts of equity.20
On the issue that the promissory note is void for not being supported by a consideration, we
likewise disagree with the CA.
A contract is presumed to be supported by cause or consideration.21 The presumption that a
contract has sufficient consideration cannot be overthrown by a mere assertion that it has no
consideration. To overcome the presumption, the alleged lack of consideration must be shown by
preponderance of evidence.22 The burden to prove lack of consideration rests upon whoever
alleges it, which, in the present case, is respondent.
Respondent failed to prove that the promissory note was not supported by any consideration. From
her testimony and her assertions in the pleadings, it is clear that the promissory note was issued for
a cause or consideration, which, at the very least, was petitioners signature on the
document.1avvphi1
It may very well be argued that if such was the consideration, it was inadequate. Nonetheless, even
if the consideration is inadequate, the contract would not be invalidated, unless there has been
fraud, mistake, or undue influence.23 As previously stated, none of these grounds had been proven
present in this case.
 3) Quirino Gonzales Logging Concessionaire, et. al. vs. CA and Republic Planters Bank, G. R.
No. 126568. April 30, 2003
On the first issue. The Civil Code provides that an action upon written contract, an obligation
created by law, and a judgment must be brought within ten years from the time the right of action
accrues.33
The finding of the trial court that more than ten years had elapsed since the right to bring an action
on the Bank's first to sixth causes had arisen34 is not disputed. The Bank contends, however, that
"the notices of foreclosure sale in the foreclosure proceedings of 1965 are tantamount to formal
demands upon petitioners for the payment of their past due loan obligations with the Bank, hence,
said notices of foreclosure sale interrupted/forestalled the running of the prescriptive period."35
The Bank's contention does not impress. Prescription of actions is interrupted when they are filed
before the court, when there is a written extrajudicial demand by the creditors, and when there is
any written acknowledgment of the debt by the debtor.36
The law specifically requires a written extrajudicial demand by the creditors which is absent in the
case at bar. The contention that the notices of foreclosure are "tantamount" to a written
extrajudicial demand cannot be appreciated, the contents of said notices not having been brought
to light.
But even assuming arguendo that the notices interrupted the running of the prescriptive period, the
argument would still not lie for the following reasons:
With respect to the first to the fifth causes of action, as gleaned from the complaint, the Bank seeks
the recovery of the deficient amount of the obligation after the foreclosure of the mortgage. Such
suit is in the nature of a mortgage action because its purpose is precisely to enforce the mortgage
contract.37 A mortgage action prescribes after ten years from the time the right of action accrued.38
The law gives the mortgagee the right to claim for the deficiency resulting from the price obtained
in the sale of the property at public auction and the outstanding obligation at the time of the
foreclosure proceedings.39 In the present case, the Bank, as mortgagee, had the right to claim
payment of the deficiency after it had foreclosed the mortgage in 1965.40 In other words, the
prescriptive period started to run against the Bank in 1965. As it filed the complaint only on January
27, 1977, more than ten years had already elapsed, hence, the action on its first to fifth causes had
by then prescribed. No other conclusion can be reached even if the suit is considered as one upon
a written contract or upon an obligation to pay the deficiency which is created by law,41 the
prescriptive period of both being also ten years.42
As regards the promissory note subject of the sixth cause of action, its period of prescription could
not have been interrupted by the notices of foreclosure sale not only because, as earlier discussed,
petitioners' contention that the notices of foreclosure are tantamount to written extra-judicial
demand cannot be considered absent any showing of the contents thereof, but also because it
does not appear from the records that the said note is covered by the mortgage contract.
Coming now to the second issue, petitioners seek to evade liability under the Bank's seventh to
ninth causes of action by claiming that petitioners Quirino and Eufemia Gonzales signed the
promissory notes in blank; that they had not received the value of said notes, and that the credit
line thereon was unnecessary in view of their money deposits, they citing "Exhibits 2 to 2-B,"43 in,
and unremitted proceeds on log exports from, the Bank. In support of their claim, they also urge
this Court to look at Exhibits "B" (the Bank's recommendation for approval of petitioners'
application for credit accommodations), "P" (the "Application and Agreement for Commercial Letter
of Credit" dated January 16, 1963) and "T" (the "Application and Agreement for Commercial Letter
of Credit" dated February 14, 1963).
The genuineness and due execution of the notes had, however, been deemed admitted by
petitioners, they having failed to deny the same under oath.44 Their claim that they signed the notes
in blank does not thus lie.
Petitioners' admission of the genuineness and due execution of the promissory notes
notwithstanding, they raise want of consideration45 thereof. The promissory notes, however, appear
to be negotiable as they meet the requirements of Section 146 of the Negotiable Instruments Law.
Such being the case, the notes are prima faciedeemed to have been issued for consideration.47 It
bears noting that no sufficient evidence was adduced by petitioners to show otherwise.
Exhibits "2" to "2-B" to which petitioners advert in support of their claim that the credit line on the
notes was unnecessary because they had deposits in, and remittances due from, the Bank deserve
scant consideration. Said exhibits are merely claims by petitioners under their then proposals for a
possible settlement of the case dated February 3, 1978. Parenthetically, the proposals were not even
signed by petitioners but by certain Attorneys Osmundo R. Victoriano and Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as Section 1448 of the
Negotiable Instruments Law concedes the prima facie authority of the person in possession of
negotiable instruments, such as the notes herein, to fill in the blanks.
As for petitioners' reliance on Exhibits "B", "P" and "T," they have failed to show the relevance
thereof to the seventh up to the ninth causes of action of the Bank.
On the third issue, petitioners asseverate that with the trial court's dismissal of the Bank's complaint
and the denial of its first to sixth causes of action, it is but fair and just that the real properties which
were mortgaged and foreclosed be returned to them.49 Such, however, does not lie. It is not
disputed that the properties were foreclosed under Act No. 3135 (An Act to Regulate the Sale of
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages), as amended.
Though the Bank's action for deficiency is barred by prescription, nothing irregular attended the
foreclosure proceedings to warrant the reconveyance of the properties covered thereby.
As for petitioners' prayer for moral and exemplary damages, it not having been raised as issue
before the courts below, it can not now be considered. Neither can the award of attorney's fees for
lack of legal basis.